Service Sector Grows for 11th Month
The vast U.S. service sector grew for an 11th straight month in December but at a more modest rate than in November, a survey said Monday. It was the latest in a series of reports that point to a moderate economic recovery.
The Institute for Supply Management said its index of non-manufacturing business activity slipped to 54.7 in December, after surging to 57.4 in November. The December reading was slightly lower than forecasts of a decline to 55.9.
The service sector includes a large swathe of businesses including entertainment and banking and makes up the vast majority of the U.S. economy. A number on the ISM index above 50 denotes expansion; a reading below 50 shows contraction.
The same group released Thursday a more closely watched index of factory activity that was well above expectations, showing broad strength in nearly every sub-category. That fueled a stock market rally on the first trading day of the new year and sparked some optimism that the ISM service index would show similar strength.
“Taken together, the ISM surveys of manufacturing and non-manufacturing activity raise the hope that the economy may be working its way out of its recent soft spot,” said Jade Zelnik, chief economist at RBS Greenwich Capital. “At the very least, they refute the notion that activity is on the verge of a downturn.”
The non-manufacturing new-orders index, an indicator of future growth in services, eased a bit to 56.3 in December, after rocketing up to 58 in November. Tempe, Ariz.-based ISM’s factory report for December, in contrast, showed the biggest one-month surge in new orders in two decades.
According to the report, service businesses shed jobs for the 22nd straight month, leaving the employment index at 46.9 in December, up a bit from 45.9 in November but still below the 50 mark that divides contraction from expansion.
Non-manufacturing prices, which have remained subdued for several months, eased. The ISM index of service prices fell to 51.5 in December, from 54 in November.
Ralph Kauffman, director of the survey, said the drop in prices probably stemmed from non-manufacturing companies discounting prices to attract customers.
He also said a solid rise in new orders over the last couple of months offered some hope that business investment, which is critical to shoring up future growth, is starting to improve.
In another positive sign, Kauffman said some suppliers, ruled by caution since late summer as the economy started to slow, have had to start replenishing stocks to meet demand. “In some cases they realized that caution was excessive.”
