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US Service Economy Advances in January: ISM

H.S. Borji
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The US service economy rebounded in January as business activity and new orders rose at a faster pace, although overall activity remained close to December’s six-month low.

The Institute for Supply Management’s gauge of national service activity rose 0.5 percentage point to 56.7 in December. Economists forecast a slight increase to 56.3.

The US service economy has been above the 50 mark that separates expansion from contraction for 60 consecutive months. The January print suggests services output was rebounding at the start of the year following a sharp slowdown in December.

Only 8 non-manufacturing industries reported growth in January, led by accommodation and food services, finance and management, of companies and support services. Eight industries reported contraction in January, led by mining, arts and entertainment, and construction.

Overall business activity improved last month, as eight industries reported gains. The business activity sub-index rose 2.9 percentage points to 61.5 after falling sharply the previous month. The gains were led by finance, public administration, and accommodation and good services.

January new orders improved slightly over the previous month. Nine non-manufacturing industries reported growth, ISM data showed. The new orders sub-index increased 0.3 percentage point to 59.3.

New export orders increased for the tenth consecutive month, although the rate of growth continued to ease from prior months. Only four industries said they increased their international sales in January, while three industries reported a decrease. The new export orders sub-index declined 1 percentage point to 52.5.

Said one manager from the mining sector, “The fall of oil commodity pricing is putting a good deal of pressure on our customers (oil company) budgets for 2015.”

Start of the year is off to a great start. We remain cautiously optimistic. Lower fuel prices show strong local, regional and national economic activity,” according to a manager from the professional, scientific and technical services industry.

Added another manager from accommodation and food services, “Mild winter has had a good effect on sales. Overall sales are up 2% from last year. Fuel prices are down which has reduced costs. Government mandates on healthcare and minimum wage are still a concern.”

Employment growth weakened considerably in January. The employment sub-index declined 4.1 percentage points to 51.6, suggesting employers were adding workers at a slower pace at the start of the year.

The Labor Department on Friday is expected to show the creation of more than 200,000 jobs in January for the twelfth consecutive month. On Wednesday ADP said employers added 213,000 private payrolls last month. The vast majority of those gains – 86 percent – were concentrated in the service economy.

A separate gauge courtesy of Markit Group also said US service activity rebounded in January, despite a sharp slowdown in new work. Markit’s final US January services PMI was 54.2, up from December’s 10-month low of 53.3. The composite index of services and manufacturing activity rose 0.9 percentage point to 54.4.

Said Markit chief economist Chris Williamson, “Companies are clearly struggling at the moment, with the surveys recording the smallest increase in new orders seen since the financial crisis six years ago amid weaker US and global economic growth and the strong US dollar.”

The latest data suggest the US economy was expanding a little more than 2 percent annually at the start of 2015.

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