US Service Sector steady in December, but new orders contract

service sector

The US service sector slowed again in December but more alarmingly new orders contracted for the first time since 2009.

The Institute for Supply Management (ISM) reported that its service index fell to 53% in November, a decrease from its 53.9% November reading. This missed expectatoins of 54.5 from forecasters surveyed by Dow Jones Newswires. This marks the 48th consecutive month of growth. A reading above 50 indicates the sector is expanding.

The New Orders Index contracted after 52 consecutive months of growth for the first time since July 2009. The index decreased significantly by 7 percentage points to 49.4%.

Hiring rebounded after a weak November report as the Employment Index increased to 55.8%.

Overall the ISM index still points to a level of steady growth albeit slowing. We still believe that the service sector presents a very attractive investment opportunity.

Click to see why Service stocks should be a significant part of your portfolio

The Institute of Supply Management reported that just 8 of the 18 non-manufacturing industries reported growth in December— listed in order — are: Management of Companies & Support Services; Retail Trade; Other Services; Finance & Insurance; Public Administration; Construction; Information; and Health Care & Social Assistance. Eight industries reported contraction in December.

Respondents of the survey said:

  • "Hiring activity seems to remain steady at mid- to senior-level management positions. However, it is uncertain what impact the Affordable Healthcare Act will have on hiring and full-time status in 2014 as more companies are re-evaluating their healthcare benefits strategies for all positions." (Management of Companies & Support Services)
  • "Business is steady. We are at year-end and the holidays, so it's a little quiet. Expect things to pick up after the first [of the year]." (Construction)
  • "Early, severe winter weather has had a major impact on business. Both customers and employees were unable to reach the workplace." (Arts, Entertainment & Recreation)
  • "Steady, with no significant shifts in demand or supply." (Finance & Insurance)
  • "Overall, we are still seeing the pickup in business which began in the 3rd quarter." (Wholesale Trade)
  • "General business conditions have improved." (Information)

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About the Author: Chris Wang

Chris Wang

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