MNI INTERVIEW:US Service Recovery Faster Than Fed Expects- ISM

The U.S. services sector is on track for a speedier recovery than most economists and the Federal Reserve are projecting, Institute for Supply Management survey chair Anthony Nieves told MNI Wednesday.

Forecasts from the Fed are likely too conservative, and "we should see a good first half, and a better second half," he said.

"All indications are that we might move a little faster; that's what I'm seeing," he said. "It just looks like things are starting to ramp back up."

The ISM Services PMI rose 1 point to 58.7 in January, the highest since February 2019. Forecasts had called for a decline to 56.7 from December's 57.7 according to the Bloomberg consensus.

LESS UNCERTAINTY IS HELPING

Part of the gain was likely because some uncertainty was alleviated by the inauguration of President Joe Biden, Nieves said. Business owners and consumers now have a better understanding of what economic and Covid-related policy may look like moving forward.

A full services recovery still hinges on the efficacy of a Covid vaccine, he added, and some respondents in the ISM survey worry that variants in the U.S. may derail the already-slow immunization initiative. "Hopefully we don't have anything that derails the positive track that we're on," he said.

Although Covid infection rates are still far too high, daily case counts are falling, renewing some optimism that a post-pandemic world is on the horizon. That will increase demand for things like hotel stays and air travel in the near future, Nieves said, pushing up the cost of those services.

Service prices increased in January, though at a slower rate than the month before, with the prices index down 0.2 points to 64.2.

SOME PROGESSS ON JOBS

The rising cost of fuel is also impacting the price of services, Nieves said, given the sector's reliance on trucking.

Increasing demand for services should continue to push up employment levels, he said. The ISM employment index grew 6.5 points to 55.2 in January. That's the highest since February and the largest increase since June.

That "doesn't mean that all of a sudden we're at full capacity employment by any stretch," he said. The number of jobs remains far below the pre-pandemic level and further growth depends on sustained demand and an end to capacity restrictions occupancy in bars and restaurants, Nieves said.