Services sector contracts unexpectedly in February

A waitress at Langer's Delicatessen in Los Angeles.
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A waitress at Langer's Delicatessen in Los Angeles.

The U.S. services sector unexpectedly contracted in February, an industry report showed on Wednesday.

Financial data firm Markit said its preliminary, or "flash," reading of its Purchasing Managers Index for the service sector fell to 49.8 from 53.2 a month earlier, falling well short of expectations for a reading of 53.5.

A reading below 50 signals contraction in economic activity.

But with respondents also blaming the harsh weather in the Northeast, the decline in the index probably exaggerates the slowdown in the services sector.

A firmer housing market should help to prop up the economy as it navigates rough seas caused by a robust dollar, spending cuts by energy firms hurt by lower oil prices and sluggish global demand. Efforts by businesses to sell off inventory are holding back growth.

The economy grew at a 0.7 percent annual rate in the fourth quarter. Growth estimates for the first quarter are currently above a 2 percent rate.

Reuters contributed to this report.