Growth in US service sector slows down

Service industries expanded in December at the slowest pace in six months, indicating the biggest part of the US economy cooled as the year drew to a close.

The Institute for Supply Management’s non-manufacturing index fell to 56.2 from a November reading of 59.3 that was the second-strongest since 2005, the group’s report showed yesterday. The average for all of 2014 was the highest in nine years.

Gains in consumer spending will probably underpin the service industries that make up almost 90% of the economy as global markets struggle to gain momentum. Increased hiring and the cheapest petrol since 2009 are helping spur sales from car dealers to clothing retailers.

“Some cooling in services was inevitable after the strong readings we saw earlier,” said Ryan Sweet, a senior economist at Moody’s Analytics. “Services industries are on a decent footing coming into this year. The conditions are very supportive for growth.”

Retailers and accommodation and food service companies topped the list of the 12 non-manufacturing industries that reported growth in December, according to the report. Five sectors contracted.

A slowdown to a more sustainable pace of growth was also reflected in the group’s factory survey released last week. The ISM manufacturing index also fell in December to a six-month low as businesses adjusted to weaker overseas markets and some companies delayed orders in anticipation oil prices would fall further. Readings greater than 50 signal expansion.

Orders to factories fell in November for a fourth straight month, a Commerce Department report showed.

Cheaper fuel helped drive down the group’s index of prices paid at service providers to 49.5, the first time since September 2009 that more companies reported costs were falling than rising.

The US expansion, well into its sixth year, is being powered by growth in household purchases. Consumer spending, which accounts for almost 70% of the economy, grew at a 3.2% pace in the third quarter, according to Commerce Department data. That helped the economy expand at a 5% annualized pace, the fastest since the three months ended in September 2003.

Monthly payroll gains averaged almost 241,000 from January through November, up from the prior year’s 194,000. The 2.7m workers added to payrolls are the most since 1999.

A report later this week may show the economy added 240,000 jobs in December after 321,000 a month earlier.

* Bloomberg