U.S. services firms grew at steady but slower pace last month

Decline echoes similar drop in manufacturing index

By Christopher S. Rugaber
AP Economics Writer

WASHINGTON (AP) — U.S. services firms expanded at a solid but much slower pace in December compared with the previous month, a sign growth may have cooled at the end of last year.

The Institute for Supply Management said Tuesday that its services index fell to 56.2 last month, down from 59.3 in November. Yet the drop comes from a very high level: November’s reading was near an eight-year high of 59.6 reached in August. Any reading over 50 indicates expansion.

The decline echoes a similar drop in the ISM’s manufacturing index, released last Friday. Both indexes fell from strong readings in November, but are still showing steady levels of expansion. Hiring picked up last year and gas prices have fallen, leaving more Americans with money to spend. That benefits retailers, hotels, restaurants and other service providers.

Paul Dales, senior U.S. economist, said the two ISM surveys are consistent with an economy growing at a 3 percent annual rate. That’s solid, though below the breakneck 4.8 percent pace in the April-September period.

“Don’t interpret this survey as a sign that the outlook has weakened,” Dales said in a note to clients. “On the contrary, the further fall in oil prices has actually made things even better.”

A measure of sales fell sharply and a gauge of orders also declined, evidence that business may slow a bit this month. But growth in hiring was just slightly below November’s reading, suggesting that job gains last month were still healthy.

That’s a good sign ahead of the government’s jobs report for December, which will be released Friday.

The ISM is a trade group of purchasing managers. Its survey of services firms covers businesses that employ 90 percent of the American workforce, including retail, construction, health care and financial services companies.

December’s reading in the services index was close to last year’s average of 56.3. The overall economy expanded rapidly in 2014 after harsh winter weather caused a contraction in the first quarter.

The economy rebounded over the spring and summer, expanding from April to September at the fastest pace since 2003.

Employers have stepped up hiring as well, adding an average of 241,000 jobs a month through November. That’s the strongest pace for job gains since 1999.

Economists forecast that employers added 240,000 jobs last month, according to data provider FactSet, while the unemployment rate is predicted to remain at 5.8 percent.

On Friday, the ISM said that its manufacturing index slipped in December to 55.5 from 58.7 in November. Orders and production both fell. Still, a measure of hiring rose, a good sign for Friday’s jobs report.