WASHINGTON – U.S. services companies grew in December at their slowest pace since early 2014, a private survey found. But the deceleration occurred for a seemingly positive reason: Companies made deliveries faster.
The Institute for Supply Management said Wednesday that its services index dipped to 55.3 last month from 55.9 in November. The December reading matched the most recent low set in April 2014. Still, any reading above 50 signals that services firms are expanding.
“We continue to see strong domestic demand and a robust non-manufacturing sector as driving U.S. activity,” said Rob Martin, an economist at the bank Barclays.
U.S. consumers are becoming financially healthier, likely helping much of the services sector continue its nearly six year rebound after declining sharply during the Great Recession. Solid hiring over the past year has improved many Americans’ economy security, while low oil and gasoline prices have given family budgets a bit more support.
Unemployment held at a stable 5 per cent in November for a second straight month, down from 5.8 per cent a year earlier. Employers have added 2.6 million jobs over the past 12 months, with nearly 90 per cent of the jobs coming from the services sector as auto sales have hit record highs and spending at restaurants has surged.
Consumers have also been helped by gas costing an average of $1.99 a gallon, a 9.5 per cent decline from a year ago. The Energy Department estimated in December that U.S. households saved an average of $660 on gas last year.
The services index dropped despite faster growth last month for business activity, new orders and employment.
What caused the index to fall was a decline in supplier deliveries. It fell to 48.5, signalling contraction. But the reason for that decline stems from how the index is calculated: It assumes that rising demand should cause supplier deliveries to slow and companies to commit more resources. Last month, though, deliveries were completed at a quicker pace, thereby causing the supplier deliveries portion of the index to fall.
The ISM is a trade group of purchasing managers. Its services survey covers businesses that employ the vast majority of workers, including retail, construction, health care and financial services companies.
Still, the U.S. economy faces headwinds abroad that have slowed growth. China is settling uneasily into a slowdown, while European growth has been grinding away and emerging economies such as Brazil and Russia are confronting severe downturn.
Chinese consumers are especially struggling. A services index for China, the Caixin/Markit Purchasing Manager’s Index, dipped to a 17-month low of 50.2 in December.
But factory activity is suffering the most from the worldwide turmoil. U.S. manufacturers contracted in December as new orders and hiring prospects dimmed, the ISM said Monday. Its index of factory activity fell to 48.2 from 48.6 in November.
“The gap between the (manufacturing and services) indexes remains historically large, consistent with most of the economy remaining much stronger than the export-oriented manufacturing sector,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.