U.S. Service Sector Indicates Economic Acceleration

Service Sector sped up in December.
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The service side of the U.S. economy accelerated in December, indicating that the overall economy is likely growing at a faster clip.

The Institute for Supply Management’s non-manufacturing index jumped to 55 last month from 53.9 in November. The consensus forecast was for the index to come in at 54.5.

The service sector accounts for nearly 80 percent of U.S. GDP.

Business activity grew at a faster pace in December, the ISM survey showed, while new orders and employment continued to grow but at a slower pace. There was no sign of increased pricing pressure, indicating that inflation remains tame.

Scores over 50 on the index indicate economic growth. Scores above 55 indicate exceptional growth. The jump in December shows that instead of losing steam at the end of 2019, as many economists had predicted, growth appears to be accelerating.

Eleven of ISM’s 16 services sector categories reported growth in December:

  • Retail Trade; Arts, Entertainment & Recreation;
  • Management of Companies & Support Services;
  • Health Care & Social Assistance;
  • Utilities;
  • Accommodation & Food Services;
  • Information;
  • Transportation & Warehousing;
  • Professional, Scientific & Technical Services;
  • Other Services;
  • and Finance & Insurance.

The six categories that reported a contraction in activity are:

  • Educational Services;
  • Real Estate, Rental & Leasing;
  • Wholesale Trade;
  • Public Administration;
  • Mining;
  • and Construction.

The real-estate, mining, and construction sub-sectors may have been dragged down by seasonal influences.

“Weather and the holiday season have had an impact on residential new construction sales and production. While demand is outstripping supply in the housing market, business is down due to global trade insecurity causing affordability, labor and cost pressures,” a construction industry executive told ISM.

 

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