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The numbers: The Institute for Supply Management said on Tuesday that its service-sector PMI fell to 52.6% in February from 53.4% in the prior month.

The drop was bigger than expected. Economists polled by the Wall Street Journal had expected the ISM index to inch lower to 53.1%.

Numbers over 50% indicate expansion in the economy. The nonmanufacturing index has been above 50% since December 2022.

A separate gauge, the S&P Global U.S. Services PMI, posted 52.3% in its final reading in February. That’s up from a flash reading of 51.3%. The PMI was 52.5% in January.

Key details: A measure of new orders was 56.1% in February, up from 55% in the prior month.

The employment gauge contracted for the second time in three months, falling to 48% from 50.5% in the prior month.

A measure of prices paid for services fell to 58.6% from 64% in January. While that’s a slowdown from the prior month, upward price pressures continue.

Big picture: The service sector has been an important ingredient in keeping the economy surprisingly strong over the past six months. The pace hasn’t been strong, but it has been steady.

“The report continues to reflect steady, incremental growth for the services sector,” said Anthony Nieves, chair of the ISM’s service PMI survey.

He noted that prices continue to rise, even if it is at a subdued pace.

“We’re definitely seeing prices continue of this trend of increasing,” Nieves said. He noted that the trend has been ongoing for almost seven years.

Higher service inflation is one reason the Federal Reserve is being cautious about cutting interest rates.

Looking ahead: “The index spent all of 2023 in expansionary territory and looks to continue riding consumer demand for services in the coming months,” said Kurt Rankin, senior economist at PNC Financial Services Group.

Market reaction: Stocks

opened lower on Tuesday, while the 10-year Treasury yield
was down to 4.124% in early morning trading.

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