U.S. Service Industries Expand at Faster Pace Than Forecast

  • Non-manufacturing gauge holds at highest since October 2015
  • ISM’s gauge of orders at service producers increases

America’s service providers expanded more than forecast last month, spurred by an upturn in orders that coincided with stepped-up demand at the nation’s factories.

The Institute for Supply Management said Thursday that its non-manufacturing index held at 57.2 in December, the highest level since October 2015. The median forecast in a Bloomberg survey called for 56.8. Readings above 50 signal growth in the industries that make up nearly 90 percent of the economy.

Bookings at service producers were the strongest since August 2015, helping explain a pickup in business sentiment about the economy since the presidential election in November. The ISM’s measure of service-related business activity, which parallels manufacturing output, was near the highest in more than a year.

“We have a very strong finish to 2016,” Anthony Nieves, chairman of the ISM non-manufacturing survey, said on a conference call with reporters. After the year-end holidays, “there tends to be a little lull or pullback, but when we look at the new orders index remaining strong, I’d be hard-pressed to see how much it may come off, if at all.”

Earlier this week, the Tempe, Arizona-based supply management group said that its index of manufacturing reached a two-year high last month, powered by the biggest monthly increase in orders growth since August 2009.

More Momentum

Together, the reports indicate the economy will gain momentum in 2017 after a projected soft fourth quarter as American industry prepares for a change in government leadership. President-elect Donald Trump has said he aims to boost economic growth and increase hiring by taxing less and reducing regulations.

The ISM services survey covers a range of industries, including retail, health care, agriculture and construction. Estimates in the Bloomberg survey ranged from 55 to 58. The December figure exceeds the 54.8 average from January through November 2016. It matches the average for all of 2015.

Twelve out of 18 industry groups, including mining, retail, finance and construction, expanded in December. Public administration, wholesale trade and agriculture and forestry contracted.

Orders Strengthen

The ISM’s measure of orders at services providers increased to 61.6 in December from 57 a month earlier. The group’s business activity index was little changed at 61.4 after 61.7.
A measure of services employment cooled to 53.8 in December from a 13-month high of 58.2.

The Labor Department is set to release December employment figures on Friday. Payrolls are projected to increase by about 180,000 after a 178,000 advance in November.

Like the ISM’s latest manufacturing survey, service producers experienced faster inflation in December. The group’s measure of prices paid for materials climbed to 57, the highest reading since August 2014, from 56.3 in November. There were 14 commodities up in price last month, including a third straight increase in the cost of labor.

— With assistance by Chris Middleton

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE