Service industries show crack in US economy's foundation

Services, the biggest part of the US economy, shrank this month for the first in more the two years, hurt by a late-January snowstorm that blanketed the East Coast and a dearth of orders.

The Markit Economics preliminary purchasing managers' services index for February slumped to 49.8, the lowest reading since the partial government shutdown in October 2013, from 53.2 the prior month, a report from the London-based group showed Wednesday. It was the second-weakest reading in data going back to October 2009. Readings lower than 50 signal contraction.

Winter storm Jonas paralyzed much of the Northeast at the end of last month, and disrupted businesses well into February. Additionally, the turmoil in financial markets, concern about slowing global growth, an uncertain presidential election and the possibility of further Federal Reserve interest-rate increases all weighed on service providers, Chris Williamson, Markit's chief economist, said in a statement.

"Any bounce-back from the weather may therefore prove to be only a temporary improvement in a steady downward trend in business conditions," Williamson wrote. "Slumping business confidence and an increased downturn in order backlogs suggest there's worse to come."

The index raised concern that the slowdown in US economic growth was spreading beyond manufacturing.

Orders slow
Markit's data showed new orders cooled so far this month, leading to the biggest reduction in backlogs since April 2014. The group's measure of the outlook over the next 12 months was the weakest since August 2010. Conversely, the employment gauge continued to signal hiring remained strong.

The index doesn't have a long history, starting just after the last recession ended, making it difficult to determine how the gauge performs during economic slumps.

The downturn in this measure will raise interest in the Institute for Supply Management's services index, released on March 3. Those figures go back to 1997, and cover almost 90 per cent of the economy. As of January, the Tempe, Arizona-based ISM's measure continued to show growth, although at the weakest pace in two years.