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US Services Sector Rebounds

FILE: A sign reading "Welcome Back Now Open" is posted on the window of a Morton's Steakhouse restaurant as a man works inside in San Francisco. Taken Mar. 4, 2021

The dominant services sector in the United States bounced back in January after contracting in December, survey data showed on Friday, helped by stronger business activity and new orders.

The Institute for Supply Management's (ISM) services index came in at 55.2 percent in January, rising more than expected above the 50-percent threshold signaling growth in the sector.

"Respondents indicated that capacity and logistics performance continue to improve," said ISM survey chair Anthony Nieves in a statement.

"The majority of panelists indicated that business is trending in a positive direction," he added, although some firms find it hard to fill open positions while others cut headcount.

In January, the business activity index jumped 6.9 points up to 60.4 percent while the new orders index surged 15.2-points to 60.4 percent, the ISM report said.

But analysts expect the good showing last month will not last as the impact of rate hikes and heightened borrowing costs ripples through the economy.

"Despite the rebound... the longer-term slowing in the services sector remains intact," said Oren Klachkin of Oxford Economics.

"A significant bounce is unlikely over the coming months as demand cools in the wake of Fed rate hikes and the past tightening in financial conditions," he added.

Survey participants also indicated a difference in mood across industries.

A respondent in the accommodation and food services sector expressed positivity on growth, noting that "consumer confidence is returning, and people are more willing to spend money on luxury items."

But another respondent in the construction sector said the "new residential housing market is still reeling from mortgage rate increases."

"Sales have fallen off dramatically at entry-level price points, as costs are trending flat," the unnamed respondent said.