A “Sorry Out Of Service” sign is seen on a fuel pump at a gas station in Spring Hill, Tennessee, U.S. (Photographer: Luke Sharrett/Bloomberg)

U.S. Services Gauge Dips to Five-Month Low as Business Cools

(Bloomberg) -- Expansion in U.S. service industries slowed by more than expected in December to end the year on a weaker note as measures of business and employment fell, though new orders remained strong.

The Institute for Supply Management’s non-manufacturing index declined to 57.6, the lowest since July and below the median estimate of economists for 58.5, according to a report Monday. The drop was led by the biggest decline in more than a decade for a measure of supplier-delivery times, as well as a decrease in the gauge of business activity. New orders rose to a six-month high. Mining was the only industry reporting a contraction in December.

U.S. Services Gauge Dips to Five-Month Low as Business Cools

Key Takeaways

  • The drop follows a bigger plunge last week in ISM’s gauge of manufacturers, adding to reasons for some caution on the U.S. economic outlook even after robust figures on jobs and wages reported Friday. At the same time, the ISM services index remains at a healthy level and the pickup in orders indicates demand is still solid.
  • There was little indication in the data of the trade war with China weighing on business: Export orders accelerated, while a measure of imports eased only slightly. Also, a gauge of prices fell to the lowest in more than a year, possibly reflecting a tumble in oil and fuel costs.
  • The bottlenecks facing service companies are clearing up: a measure of backlogs fell to an 11-month low, and delays in supplier deliveries eased for a second month.
  • The employment gauge dropped for a third month while remaining at an elevated level. Friday’s jobs data from the Labor Department showed private service providers added the most workers in December in more than a year.

Official’s Views

“Conditions are still good,” Anthony Nieves, chairman of the ISM’s non-manufacturing business survey committee, said on a conference call. “It’s a pullback, yes, it’s a cooling off, but it’s still a good operating rate of growth.”

What Our Economists Say...

The decline in the headline index was driven primarily by supplier delivery times and business activity. Strength in new orders suggests that the activity index should rebound in the near term, while the downward move in supplier delivery times reflects an easing in supply constraints -- consistent with moderating activity in a sector that saw robust growth in 2018.

-- Tim Mahedy and Carl Riccadonna, Bloomberg Economics

Read more for the full reaction note.

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  • The main gauge decreased from 60.7 in November and covers sectors representing about 90 percent of the U.S. economy. Readings above 50 signal expansion.
  • The inventories gauge fell by the most since 2016, indicating that stockpiles are still expanding but at a slower pace.

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