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News : Global Economy Last Updated: Mar 7, 2011 - 7:16 AM

Global service sector expansion at near five-year high in February; Cost pressures highest since September 2008
By Finfacts Team
Mar 4, 2011 - 1:46 AM

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Source: Markit

Business activity in the global service sector increased at the fastest pace in almost five years in February. Growth of new orders also remained elevated and employment rose further. Cost pressures continued to build, as input price inflation hit its highest since September 2008.

At 59.3 in February, up further from last September's seven-month low of 53.1, the JPMorgan Global Services Business Activity Index rose to its highest level since April 2006. The headline index has signalled expansion in each of the past 19 months.

Growth was led by the US non-manufacturing sector. Business activity in the US rose to the second-greatest extent in the survey history, bettered only by that signalled in January 2004. The Eurozone saw growth hit a three-and-a-half year peak, led by France and Germany. There were also some signs of improvement in the 'periphery', with Italy and Spain returning to expansion and growth accelerating in Ireland.

The rate of increase in the UK was weaker than in the previous month, but broadly in line with the modest expansions seen prior to the weather-affected readings of December and January. India recorded a substantial increase in activity, whereas the trend in growth remained subdued in China, Brazil and Russia. Japan saw a slight contraction for the first time in three months.

New business increased for the nineteenth consecutive month in February. Although the rate of growth was marginally softer than in the previous month, it was still the second-sharpest since May 2006. The US saw the strongest increase, with the pace of increase only slightly below January's seven-year high. Growth hit a three-and-a-half year high in the Eurozone and an eight-month peak in India. Rates of increase remained moderate in China and the UK, while Japan saw a modest decline.

February saw employment increase for the eighth successive month. Moreover, the rate of expansion accelerated to its most marked since December 2007. Staffing levels rose in the US (near five-year high), the Eurozone (34-month peak), China, India, Russia, Brazil and Hong Kong. Japan and the UK both reported further job losses.

Input cost inflation accelerated to its highest since September 2008 in February, led by a substantial increase in costs at US non-manufacturing companies. Rates of inflation were also above the global average in the UK, Russia and Hong Kong. Input prices in Brazil rose to the greatest extent since December 2008.

Commenting on the survey, David Hensley, Director of Global Economics Coordination at JPMorgan, said: "The recovery in the global service sector continued to accelerate in February, with business activity rising at the fastest pace in almost five years. Growth of new business is also still running at a robust clip, positioning the sector well to continue its current upward trajectory. Job creation remained modest compared to that seen in manufacturing, but will hopefully improve if conditions continue to strengthen."

The Global Report on Services is based on the results of surveys covering around 3,500 executives carried out in the USA by ISM (the Institute of Supply Management) , and in Japan, China, the UK, Germany, France, Spain, Italy, Brazil, India, Russia, Ireland and Hong Kong by Markit, in Australia by AiG, New Zealand by Business NZ and Mexico by HSBC.

Pay more attention to service sector PMI (Purchasing Managers' Index) than manufacturing data, notes Frederic Neumann, managing director & co-head of Asian economics research at HSBC. He told Vasu Menon of OCBC Bank and CNBC's Karen Tso & Martin Soong in Sept 2010 that end demand is a better indicator of the health of the global economy:

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