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Services Sector in the US Expands While it Stagnates in the UK and Retreats in the Eurozone
Mar 8, 2003

than in January 2003. The ISM index of non-manufacturing business activity increased for the 13th consecutive month in February and reached 53.9%, which is above the 50% break-even threshold. The reported growth indicates a slightly slower rate of expansion than the 54.5% expansion reported in January. Business activity in the UK service sector decelerated to almost stagnation in February. The Chartered Institute of Purchasing and Supply and NTC service sector index published yesterday showed that business activity in February was 50.2%, down from 52.3% in January. The UK service sector which showed remarkable resilience during 2002 appears to be feeling the effects of slower growth rates in continental Europe. Precisely, the Eurozone Index of service sector activity published by NTC-Reuters showed the service sector activity decreased in Continental Europe. In February the Eurozone index of service sector business activity was 48.9%, which was bellow the breakeven threshold of 50% registered in January.

Although the non-manufacturing sector in the U.S. grew at a more slowly rate in February, purchasing and supply executives reported that 10 industry groups grew in February, while only three groups contracted, and three others reported no change. Increased business activity in February was reported by 28 percent of members, compared to January's 24 percent. Reduced activity was reported by 19 percent of members compared to 25 percent in January. In February, the remaining 53 percent of members indicated no change in business activity, compared to 51 percent in January. The industries reporting the highest rates of growth of business activity in February were Health Services, Other Services, Finance, and Real Estate. The industries reporting contraction of business activity in February were Transportation, Public Administration, and Wholesale Trade.

U.S. Employment in the non-manufacturing sector decreased at a slow rate in February after registering the first increase in 23 months in January. ISM's Non-Manufacturing Employment Index for February is 49 percent compared to 50.3 percent in January.

The poor performance of the Eurozone service sector continued to be determined by a sharp drop in the German service sector which registered its worst contraction to date. The NTC Research-Reuters Index of service sector activity in Germany was 43.6% in February, down from 43.9% registered in February. The continued dynamism of the French service sector, which registered a health 53.8% expansion in February was not enough to offset the decline of the entire Eurozone service sector. The Spanish service sector also registered a slight contraction in February after recovering in January from several months of continued decline.

As a result of the decline in business activity, Eurozone service sector employment fell for the seventh consecutive month in February. The rate of decline remained steep, easing only slightly on the survey record rate of job shedding recorded in January. Although marginal increases in employment were seen in France and Italy, staffing levels were again cut sharply in Germany. A more modest drop in employment was seen in Spain.

Despite seeing costs rise sharply, Eurozone service sector companies were unable to increase their average prices charged in February, suggesting a squeeze on profit margins. Measured across the euro area, service sector charges fell for the seventh month running in February, declining at a slightly faster (though still only modest) rate than in January. Most significant was a sharp fall in charges in Germany, reflecting weak demand. Charges all fell slightly in Italy but rose in France and Spain.

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