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US service economy slows for 6th straight month in December: Markit

H.S. Borji
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The US service economy slowed for a sixth consecutive month in December, as output rose at its weakest rate since February, casting further doubts about the economic recovery in the fourth quarter.

Markit Group’s preliminary estimate of US service activity eased in December to 53.6 from 56.2. A median estimate of economists called for an increase to 56.9. A reading above 50 signifies expansion in service activity, whereas a reading below that level indicates contraction.

The PMI composite – a gauge of service and manufacturing activity – dipped to 53.8 from 56.1. Earlier this week Markit said manufacturing output weakened to an 11-month low in December as a result of weaker output and new business growth. The flash manufacturing PMI estimate was at 53.7, down from 54.8 in November.

The flash estimate represents 85 percent of total survey responses. Markit Group will post its final services PMI estimate on January 6.

December was the fourteenth consecutive month service sector activity had increased, the advance estimate revealed today. However, services sector output growth continued to fall off June’s post-crisis peak, as overall business activity eased to its lowest level since February. The latest uptick in new work was the weakest in nine months, as businesses expressed concerns that the economic outlook had weighed on demand.

Payroll gains were the lowest in eight months as softer new business growth eased overall pressures on operating capacity. Markit said work backlogs increased only marginally in December, with the latest uptick the slowest in five months. Overall job creation was the weakest since April, a sign more businesses were cautious about adding workers amid a shaky economic climate.

Based on the latest PMI data Markit does not expect private payroll growth to exceed 200,000 in December. US employers have added an average of 224,000 jobs per month in the 12 months through November, according to the Labor Department. Payroll gains were 321,000 in November, the biggest monthly increase since the beginning of 2012. The unemployment rate held steady at 5.8 percent as average hourly earnings increased at the fastest pace since June of last year.

“A sharp slowing in service sector activity alongside a similar easing in the manufacturing sector takes the overall rate of economic expansion down to the weakest since October 2013,” said Markit chief economist Chris Williamson in a statement.

He added, “The extent of the slowdown suggests that economic growth in the fourth quarter could come in below 2% which, with the exception of the downturn caused by adverse weather in the first quarter, would be the worst performance for two years.”

The Federal Reserve revised its GDP forecast for the year in its latest summary of economic projections on Wednesday. Back-to-back quarters of above-trend GDP growth puts the US economy on course to grow 2.3 percent to 2.4 percent this year, the Fed reported Wednesday. Those figures were revised up from the 2 percent to 2.2 percent growth rate forecast in September. The 2015 projection was unchanged.

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