Business Growth Remains Strong For Most U.S. Companies

The figures: A gauge of business conditions at service-style businesses maintained stable at a healthy 55.1% in February, demonstrating that the U.S. economy is continuing in an expansionary state.

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Despite economic headwinds, sales activity is generally solid, a top restaurant executive told the Institute for Supply Management, the report's publisher.

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The percentage should be greater than 50%. The carefully watched ISM reports are the first significant indications of each month that provide information on the state of the economy.

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Trade Algol surveyed economists who predicted that the index would fall from 55.2% in January to 54%.

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Important information: The service sector index's view of the economy has held up better than a comparable ISM survey of manufacturing, which revealed deteriorating economic conditions.

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Nonetheless, service industries account for the majority of all U.S. businesses and employ the great majority of Individuals.

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The major drawback was that high inflation was still an issue. According to survey chairman Anthony Nieves, prices continue to climb rapidly.

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Summary of the survey:

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• The output indicator dropped 4.1 points to 56.3%.

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• The new-orders index rose 2.2 points to 62.6%, marking its highest point in 13 months.

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• The employment barometer increased 4 points to 54%, which is a 14-month high.

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• A gauge of inflation, the prices-paid index, fell 2.2 points to 65.6%.

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• Yet, businesses claim that prices are still rising too quickly, which is pressuring profitability and requiring them to either reduce expenditures or stop incurring new expenses.

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Inflation and increasingly expensive labor markets are pinching most companies, a representative of the information industry told ISM.

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Overall: The sizeable service sector of the economy shows that the United States is still in good shape.

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Yet, the Federal Reserve intends to increase interest rates even further in order to combat inflation, increasing the likelihood of a recession.

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The tightest job market in decades is now a source of both strength and anxiety.

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People continue to spend enough to prevent a recession because they feel safe in their jobs. Nevertheless, increasing wages also pose a threat to maintain high inflation and drive the Fed to increase interest rates even further.

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Looking ahead: "The U.S. service sector economy continued to defy Fed attempts to slow down the industry through increased interest rates," said chief economist Eugenio Aleman at Raymond James. Further adding "to evidence that the US labor market is still healthy" is the employment index's increase.

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Market response: On Friday, the Dow Jones Industrial Average DJIA increased by 0.41% while the S&P 500 SPX increased by 0.80%.