It seems that not everything in the US economy is about to fall apart. According to the reports gathered by the Institute for Supply Management, the service sector has reached its peak growth last month, February. The increase can be attributed to the high demand for new orders and additional export requests.
The service index rose to 56 from the 55.2 index score that was recorded in January. The number has far exceeded the economists’ assumptions of 55 by the end of February. This is the highest index noted since February of last year. Note that any reading above 50 signifies an increase in the sector.
The demand for new orders went up from 54.4 in the index to 58.2. Meanwhile, orders for exports peaked to its highest of 60.5. This is the highest recorded number since May of 2007. The Dow Jones Industrial Average reported extended gains for the service sector.
According to a senior currency strategist at the BNY Mellon, the unexpected growth emphasizes the view that the economy continues to gain momentum despite the fears of the budget cuts.
What is the Implication of Such Growth to the US Economy?
The services sector is a very important part of the economy in the US. It accounts for about 79.6 percent of the US GDP. If converted into currency, this would translate to $9.81 trillion per year. When it comes to jobs, the service sector provides 80 percent of employment in the private sector.
Since the service sector is a huge and very significant market, seeing its good health is a positive implication towards the employment rate. This could be the assurance the administration needs to be confident enough to believe that the budget cuts will not have a severe effect on the American family.
Accordingly, if the increase in the growth of the service sector remains to be substantial, more jobs will be produced that will hopefully help offset the job loss in some other sectors of the economy.
How American Families React
American families seem to be completely happy with the reported growth of the service sector. In a poll, about 8 out of the 10 people interviewed sees hope in this news. However, small business owners are still concerned.
The increase in the service sector is mostly rooted in the demands for exports. However, SMEs only operate within their immediate locality. If the spending cuts will push through, then they will be required to pay for higher taxes while fearing a decline in sales since households will have fewer to spend.
One SME owner admitted that their only hope for survival in the soon-to-be tougher economy would be if households would have access to additional funding. Such funding would come in the form of bad credit loans that are readily accessible online. However, American households are reportedly limiting their applications because of the increased risk of default.
While the boost in the service sector is encouraging, it may not be enough to keep the economy afloat and soften the blows of the increased spending cuts; it is still not enough. The public remains to look forward to the government’s next step.