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Chief economist update: Positive feedback loop

"Business is picking up as mandated restrictions seem to be easing and spring is right around the corner."

"Higher levels of demand related to additional business reopening, and increased activity related to vaccination distribution."

"Vaccination rates are rising, and coronavirus [COVID-19] infections are falling in the region, leading to optimistic outlooks and forecasts for increased business activity."

These are some of the comments made by respondents to the US Institute of Supply Management's (ISM) survey of the services sector for March.

This optimism is reflected in the Services PMI which jumped to a record high reading of 63.7 points in March versus 55.3 in the previous month and market expectations for an increase to 59.0. The March reading marks the 10th consecutive month of above-50 reading in the index - indicating expansion - after contracting in April (41.6) and May (45.4) last year.

Wait, there's more! The Services PMI report showed not one, not two, but all of the 18 services industries surveyed reported growth.

According to Anthony Nieves -- chair of the ISM Services Business Survey Committee - "Respondents' comments indicate that the lifting of coronavirus (COVID-19) pandemic-related restrictions has released pent-up demand for many of their respective companies' services".

The Services PMI report backs up rise in US consumer confidence (reported earlier).

The Conference Board's consumer confidence index jumped by 19.3 points - the biggest monthly increase since April 2003 - to a reading of 109.7 in March. "The Present Situation Index—based on consumers' assessment of current business and labor market conditions—climbed from 89.6 to 110.0. The Expectations Index—based on consumers' short-term outlook for income, business, and labor market conditions—also improved, from 90.9 last month to 109.6 in March" (Conference Board).

Consumers' assessment of current and future labour market conditions also improved that, itself, was confirmed a few days later by the greater than expected increase in US non-farm payrolls in March.

US employment surged by 916,000 during the month following an upwardly revised 468,000 addition in jobs in February. This is the largest addition to employment since August last year and is significantly higher than consensus expectations for a 647,000 gain. The unemployment rate declined to 6.0% in March from 6.2% in the previous month and the all-time high of 14.8% recorded in April last year.

The same factors -- easing business restrictions, falling coronavirus infection rates, a fast vaccine rollout and continued support from the government - driving consumer confidence and the services sector (as well as the Manufacturing PMI which rose to a 38-month high reading of 64.7 in March) were behind the continued improvement in the US labour market.

The positive feedback loop among these activity indicators further enhances the US economy's already brightening outlook.

Read our full COVID-19 news coverage and analysis here.