U.S. Services Expansion Cooled More Than Forecast in January

(Bloomberg) -- U.S. service industries began 2019 on a softer note as a gauge of new orders dropped sharply in January to a one-year low, though a gain in employment signaled support for demand.

The Institute for Supply Management’s non-manufacturing index fell 1.3 points to 56.7, the lowest since July and below the 57.1 median estimate of economists, a report Tuesday showed. While the gauge held above the 50 line between expansion and contraction, a measure of business activity fell to a six-month low. Eleven of 18 industries reported growth, the least in two years.

Key Insights

• The weaker survey of service industries that account for about 90 percent of the economy -- spanning sectors such as retail, utilities, health care and construction -- follows a more encouraging report on ISM’s manufacturing index, which rose from a two-year low as orders and production rebounded.
• The downshift in services expansion is in sync with forecasts for economic growth to moderate this year as the tax-cut boost fades and the trade war weighs on business plans.
• One bright spot was the index of non-manufacturing employment, which rose for the first time in four months, to 57.8 from 56.6. The January payrolls report last week showed private service providers added the most jobs since August.
• With many key economic reports still delayed following the five-week government shutdown, analysts may be looking more closely at figures from private groups such as Tempe, Arizona-based ISM to better gauge the outlook.

Official’s View

“Respondents are concerned about the impacts of the government shutdown but remain mostly optimistic about overall business conditions,” Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee, said in a statement.

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• The index of non-manufacturing business activity declined to 59.7 from 61.2 the prior month, and the gauge of new orders fell to 57.7 from 62.7, the steepest drop since August 2016.
• The prices index rose to 59.4 from 58, indicating costs paid for materials and services increased at a faster pace, while a measure of export orders fell to a two-year low of 50.5 from 59.5.

--With assistance from Chris Middleton.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net;Chibuike Oguh in Washington at coguh1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns

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