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US service economy falls to 6-month low in December: ISM

H.S. Borji
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The US service economy expanded at the slowest rate in six months in December, as weaker new orders and business activity raised concerns about the economic outlook heading into the new-year.

The Institute for Supply Management’s gauge of national service activity declined 3.1 percentage points to 56.2 in December, well below the consensus estimate of 58.2.

The US service economy has been above the 50 mark that separates expansion from contraction for 59 consecutive months. The December print suggests services output was edging further away from August’s post-recession high. The PMI reading was 59.6 that month.

A total of 12 non-manufacturing industries reported growth in December, led by retail trade, accommodation and food services and information. Five industries reported declines last month, led by arts, entertainment and recreation, mining and educational services.

Overall business activity weakened sharply in December, as only nine industries reported gains. The business activity sub-index plummeted 7.2 percentage points to 57.2. The gains were led by retail trade, management of companies and support services and information.

New orders growth advanced in December for the sixty-fifth consecutive month, albeit at a slower rate than in November. Ten non-manufacturing industries reported growth, ISM data showed. The new orders sub-index declined 2.5 5percnetage points to 58.9.

New export orders increased for the ninth consecutive month, although the rate of growth continued to ease from prior months. Only four industries said they increased their international sales in December, while two industries reported a decrease. The new export orders sub-index declined 3.5 percentage points to 53.5.

“Low oil prices are easing tensions on wholesale prices,” said one manager from the accommodation and food services industry. “Energy exports should be able to boost the economy upward,” they added.

“Outlook for 1Q 2015 is strong. Up from a relatively strong 4th quarter 2014,” said another manager from professional, scientific and technical services.

Added another manager from retail trade, “Another terrific month in the auto industry. Sales are near historic highs.”

Generally upbeat business activity continued to support jobs creation, although the latest data suggest the pace of hiring was slowing. Service providers increased payrolls for a tenth consecutive month, ISM data showed. The employment sub-index dropped 0.7 percentage points to 56.0, as ten industries reported gains.

The Labor Department will report on December nonfarm payrolls on Friday. Economists expect employers to have added 240,000 jobs last month, marking the eleventh consecutive month of above 200,000 job gains. Service activity will likely account for more than 80 percent of those gains. The unemployment rate is forecast to decline slightly to 5.7 percent.

A separate gauge courtesy of Markit Group also suggested that service activity was growing at a slower rate at the end of 2014, drifting further away from June’s peak of 61.0. Markit Group’s monthly gauge of US service activity declined 2.9 percentage points to 53.3, the lowest level since February of last year.

“The pace of growth has now slowed for six consecutive months,” said Markit chief economist Chris Williamson in a statement. “The PMI surveys… suggest that the pace of US economy growth will have slowed in the fourth quarter.”

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