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US service economy rebounds in January: Markit

H.S. Borji
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The US service economy rebounded modestly in January after slowing for six consecutive months, although the rate of new business growth was the slowest in more than five years.

Markit Group’s preliminary estimate of US service activity rose 0.7 percentage points to 54.0 in January. A median estimate of economists called for an increase to 56.8. 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 – increased to 54.2 from 53.3. Earlier this month Markit said manufacturing output eased to a 12-month low in January as a result of weaker new business growth. The flash manufacturing PMI estimate was at 53.7, down from 53.9 in December.

The flash estimate represents 85 percent of total survey responses. Markit Group will post its final services PMI estimate on February 4.

January was the fifteenth consecutive month service sector activity had increased, with the rate of growth accelerating from December’s ten-month low. However, service sector output was well below June’s post-crisis peak, as new business volumes increased at the slowest rate in more than five years.

Despite a slowdown in new business growth, service providers continued to increase payrolls, albeit at the slowest rate in nine months.

US employers added 252,000 payrolls in December, capping off the strongest year of job creation in more than a decade. Jobs growth was revised up by 50,000 in October and November combined.

Businesses remained upbeat about their prospects in 2015, with most firms forecasting an increase in business activity over the next 12 months. The degree of positive sentiment was only slightly below the survey average, Markit data showed.

“The January manufacturing and services surveys collectively recorded the weakest monthly increase in new orders since the recession, sending a major warning light flashing that growth of demand has continued to slow at the start of the year,” said Markit chief economist Chris Williamson in a statement.

He added, “The 5.0% annualised rate of GDP expansion in the third quarter certainly looks like a peaking in the pace of expansion, with the surveys pointing to 2.5% annualised growth at the start of the year.”

The US economy posted its strongest six-month period of growth in more than a decade in the second and third quarters. Despite the expected slowdown at the start of the year, the US recovery will broaden throughout the course of 2015. The United States will lead all other developed nations in growth this year, according to the latest forecast by the International Monetary Fund. The US economy is forecast to grow 3.6 percent in all of 2015, up from a previous estimate of 3.1 percent.

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