U.S. private sector output growth regains momentum in February, underpinned by service providers

Preliminary data released by IHS Markit indicated that the U.S. private sector output growth regained momentum in February, as a robust upturn in service sector activity more than offset the slowdown reported by manufacturing firms.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) fell to 53.7 in February from 54.9 in January, signaling the slowest improvement in business conditions since September 2017. Economists had expected the reading to drop to at 54.7. 

A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. 

February’s decrease in the headline PMI mainly reflected a slowdown in production and new order growth.

Meanwhile, the Markit flash services purchasing manager's index (PMI) increased to 56.2 this month from 54.2 in January, indicating the sharpest upturn in activity since June 2018.

Economists had expected the reading to edge up to 54.3. 

The survey said the new work rose the most since September, amid higher levels of business and consumer spending. Latest data also pointed to the steepest increase in backlogs of work for just over four years.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 55.8 in February, up from 54.4 in January, signaling the strongest rate of private sector output since June 2018. 

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit noted, “February data provides a positive signal for first-quarter economic growth, with US businesses reporting the fastest output expansion since the middle of 2018… Historical comparisons suggest the latest survey data are indicative of an underlying economic growth rate of around 2.5% annualized, although the PMI is designed to monitor private sector companies so the impact of the government shutdown may not be fully captured."