The ISM Services index improved in December, increasing from 52.6 to 54.4 in November. This is the third consecutive month of expansion. However, the number of industries reporting growth last month dropped by one to 11 out of 18.
The supplies delivery index showed slower performance in December, but remained in expansionary territory for the 13th consecutive month. While it fell 2.3 points to 51.8, a reading above 50 still indicates slower deliveries which would be expected if customer demand is increasing.
The New Orders and New Export Orders indexes both registered large increases, pointing to decent demand conditions. New orders increased to 57.9 from 52.9 and new export orders increased to 54.2 from 48.7 in the month prior.
The prices index declined slightly by 1.1 points to 64.3, indicating that price pressures are still prevalent. The employment index jumped into expansionary territory, increasing to 52.0 from 48.9.
Key Implications
Overall, this report suggests that demand conditions are in decent shape in the service sector. The employment sub-index jumping into expansionary territory is a marked improved from earlier this year – it had fallen to 47.2 in September when concerns about labour market weakness were top of mind. But this is only a soft signal and not one that will receive much weight, given that payrolls data out on Friday will give a clearer indication of the recent trend in the labour market.
Despite generally positive developments in this report, respondents point to several factors that continue to weigh on business and keep us from being too upbeat about this report. Respondents in several industries report higher prices and input costs, and some also report still feeling some drag from the government shutdown. Uncertainty about trade policy and its impact on inflation remains a going concern for businesses in the service sector.
