The Growth of U.S. service providers was abruptly pulled back in December after soaring to a record high in November, reflecting a moderate yearly growth in business orders.
The barometer for service activities monitored by the Institute of Supply Management dropped from 69.1 in November to 62 in December as per data released on Thursday’s figure. The final figure fell short of the median projection of 67 provided in a survey conducted by Bloomberg. A figure above 50 on the index indicates expansion.
The decline of 7.1 points was sharpest since 2020 April and suggests that the omicron variant is taking its toll on service providers to cater to in-person services such as dining out, travel, and entertainment. However, the service gauge is still above the pre-pandemic levels.
As per Bloomberg News, the chairman of the ISM Services Business Survey Committee, Anthony Reeves, said in a statement that the rate of growth in the service sector continues to remain strong despite pullback for most indexes in December. The respondents in the survey showed that they continued to struggle with supply chain bottlenecks, inflation, logistics challenges, capacity constraints, and shortage of materials and labor.
Led by food and accommodation services, construction, and wholesale trade, the service industry saw growth in 16 sectors last month. The ISM barometer, which is parallel to the group’s factory production output measure, was the lowest in three months at 67.6 in November.
Since February, service providers ordered the lowest at 61.5 indexes, down by 8.2 points. The November orders index recorded the highest data since 1997.
The employment index fell marginally, cooling from 56.5 in November to 54.9 in December. Service Providers struggled to hire and retain workers in a competitive labor market as businesses were offering bonuses and higher wages to attract workers.
The supply-chain constraints which are still elevated may start to ease as per the ISM report. The committee supplier deliveries dropped to a month low of 63.9 from 75.7 November index readings. The order backlog dropped to 62.3 on the index in a three-month low. This also saw a reduction in inventory levels for suppliers in December.
The ISM report also indicated that service providers continued to be under inflationary pressures. The material purchase moved up to 82.5 from 82.3 between November and December in the ISM index.
Services inflation readings in a separate report were at odds with ISM readings on Tuesday. It showed that the prices manufacturers paid had slumped in December and the lowest in more than a year. This weighed on the overall index of ISM factory activity. However, the demand indicators remain firm and suggest that the service industry will continue to expand and grow at a healthy rate in the coming months.
