Service Sector Continues To Grow

by: Calafia Beach Pundit

The January reading of the Business Activity Index is consistent with moderate growth, steady as she goes. The uncertainties surround the "fiscal cliff" late last year appear to have had little impact on the service sector.


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The January Services Employment Index was surprisingly strong. Service sector businesses appear to have stepped up their hiring activity, and that augurs well for future economic growth.

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As the U.S. service sector continues to post moderate growth, its eurozone counterpart is slowly shaking off the contractionary pressures that have beset the region since the second half of 2011.

It remains somewhat of a mystery to me why the Federal Reserve needs to keep the monetary pedal to the metal (e.g., keeping short-term interest rates at extremely low levels and continuing to purchase additional Treasury and mortgage-backed securities) when the great majority of economic indicators reflect continued growth and little or no threat of a recession, and have done so for the better part of the past few years.

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Consider the above chart of private sector non-farm employment. There have been about six million jobs created in the past three years, and at a fairly steady pace. While the economy has not yet fully recovered all the jobs that were lost in the last recession, it is undoubtedly improving and seems likely to continue to improve. Are we so impatient for recovery that monetary policy needs to spend a fifth year in uncharted waters?