WASHINGTON - U.S. service companies expanded at a steady but slightly slower pace in December as sales dipped and new orders plunged to a four-year low. The report suggests economic growth may remain modest in the coming months.
The Institute for Supply Management
said Monday that its service-sector index fell to 53 last month, down from 53.9
in November. Any reading above 50 indicates expansion.
A measure of new orders plummeted 7
points to 49.4, the first time it has dropped below 50 since July 2009. A gauge
of business stockpiles also fell sharply.
But a gauge of hiring increased 3.3
points to 55.8, evidence that services firms are adding more jobs.
The survey covers businesses that
employ 90 percent of the workforce, including retail, construction, health care
and financial services firms.
Anthony Nieves, chairman of the ISM's
services survey, said the declines in orders and business stockpiles likely
occurred after "a little bit of excess" had built up in anticipation
of the winter holidays. He expects the orders index to recover in the coming
The rise in hiring suggests companies
are still "confident enough in the pipeline to add jobs," he added.
Service companies have grown at a
modest pace this year. The index briefly rose to an eight-year high of 58.6 in
August but then dropped to 54.4 in September. It has averaged 54.7 over the
past 12 months.
The survey typically tracks growth in
consumer spending, which drives 70 percent of economic growth.
Spending by consumers was restrained
for most of last year. But Americans have opened their wallets a bit more in
recent months. That could push the index higher in 2014.
Retail sales posted healthy gains in
November and December, according to government figures. The biggest increases
were at auto dealers, furniture stores, and at electronics and appliances
stores. Those outlets have benefited as Americans have purchases more homes and
cars. Online shopping has also grown at a strong pace.
However, traditional retailers, such
as department stores and clothing stores, haven't benefited as much. Many were
disappointed by this season's holiday sales.
The dip in the services index comes
after the ISM said Thursday that its manufacturing index remained near a 2 1/2-year high in November. Measures of new orders and employment grew at a faster
pace, pointing to higher output in the coming months.
The economy expanded at a 4.1 percent
annual pace in the July-September quarter, buoyed by a big increase in
companies' stockpiles. That was the fastest pace in nearly two years. Growth
was likely slower in the October-December quarter because inventory building
probably didn't boost growth by as much.
But economists are getting more
optimistic about the fourth quarter. Many now expect growth will reach 2.5
percent to 3 percent at an annual rate, up from around 2 percent just a few