U.S. service sector regains speed in December – ISM survey

WASHINGTON (Reuters) – U.S. services industry activity accelerated in December, but sky-rocketing COVID-19 infections depressed employment, heightening the risk that the economy shed jobs for the first time since the labor market recovery from the pandemic started.

FILE PHOTO: Gloves are seen inside the Brookville Hotel, closed permanently due to the coronavirus disease (COVID-19) pandemic, in Abilene, Kansas, U.S. October 10, 2020. Picture taken October 10, 2020. REUTERS/Arin Yoon

The Institute for Supply Management (ISM) said on Thursday its non-manufacturing activity index increased to a reading of 57.2 last month from 55.9 in November.

That lifted the index to within striking distance of its 57.3 level in February, before the coronavirus pandemic reached the United States. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index falling to 54.6 in December.

The surprise pick-up in services sector activity mirrors a similar rise in production at factories last month despite the country being engulfed by a fresh wave of coronavirus cases.

As with the manufacturing data, the improvement in the services industry index partly reflected a rise in the survey’s measure of supplier deliveries to a reading of 62.8 last month from 57.0 in November. A lengthening in suppliers’ delivery times is normally associated with a strong economy and increased customer demand, which would be a positive contribution.

But in this instance that indicates supply shortages due to the pandemic.

The ISM survey’s measure of new orders for the services industry rebounded to a reading of 58.5 in December from 57.2 in November. That came as a measure of export orders jumped to 57.3 from a reading of 50.4 in November. But the global resurgence in the virus suggests the robust export growth is unsustainable.

Backlog orders contracted, indicating a slowdown in the services industry activity in the near term.

The survey’s index of services industry employment fell to a reading of 48.2 last month from 51.5 in November. That increases the possibility that the economy lost jobs in December for the first time since April. A report on Wednesday showed a decline in employment at private companies last month.

But a survey from the ISM on Tuesday showed employment at factories rebounded in December.

According to a Reuters survey of economists, nonfarm payrolls probably increased by 71,000 jobs after rising by 245,000 in November. That would the smallest gain since the jobs recovery started in May and mean the economy recouped about 12.5 million of the 22.2 million jobs lost in March and April.

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