U.S. Service Industries Expand by Most in at Least 10 YearsBy and
America’s service industries expanded in January at the fastest pace in at least a decade as a surge in orders led to a pickup in hiring, figures from the Institute for Supply Management showed Monday.
Highlights of ISM Non-Manufacturing (January)
Faster growth at the non-manufacturing industries that make up almost 90 percent of the economy, combined with robust ISM readings on factory activity, signal sustained demand at the start of the year.
The month-over-month advance in orders was the second-biggest in data going back to mid-1997 and suggests businesses are responding to the passage of tax-cut legislation and boosting capital spending. What’s more, a gauge of export orders edged up to a three-month high as global economic growth picks up.
“The economy has come out really strong for the month of January,” Anthony Nieves, chairman of the ISM non-manufacturing survey committee, said on a conference call with reporters. He credited the gain to “positives” such as a pickup in investment, elevated business confidence and synchronized improvement in global demand.
The results are good news for the nation’s workforce, as the ISM’s employment index soared. That’s consistent with a government report last week that showed net hiring at service producers in January was the strongest in three months.
The improvement in service-related employment, a gain in orders and stronger business activity bode well for future economic growth, supporting forecasts that the Federal Reserve will raise interest rates at least three times in 2018.
What ISM Respondents SaidSigns of strong growth (in) financial performance expectations given the recent tax changes.
-- Finance & Insurance
Positive outlook for 2018. We see huge pricing pressure.
-- Health Care
Business is starting off solid.
-- Accommodation & Food Services
Overall, sales velocity looks strong.
-- Wholesale Trade
What Our Economists SayHeightened business optimism about tax reform, which has already manifested itself in consumer sentiment metrics, seems to have also boosted the business activity component of the ISM survey. Moreover, the previous decline in new orders was likely a result of elevated order backlogs earlier in the fall. As backlogs normalized, new orders spiked in January.
-- Yelena Shulyatyeva and Carl Riccadonna, Bloomberg Economics
- Official ISM data on main non-manufacturing index begin in 2008, though Bloomberg has calculated the index for previous years based on the subindexes, showing that January’s figure is highest since August 2005
- Fifteen industries, including management and support services, retail trade and construction, reported growth in January
- ISM index of business activity, which parallels the ISM’s measure of factory production, increased to 59.8 from 57.8
- Measure of export orders rose to 58 from 56.5
- Index of prices paid advanced to a four-month high of 61.9 from 59.9
- Gauges of supplier deliveries held at 55.5
— With assistance by Alexandre Tanzi