The services sector in the United States expanded at a slower pace in January. The Institute of Supply Management’s non-manufacturing PMI released last week showed that activity in the sector fell to 56.7 in January.
This scored slower compared to December’s reading of 58.0. January’s services activity was also the lowest since July 2018.
Despite the slowdown, the services sector managed to expand. Economists polled forecast that the services sector activity would ease to 57.
The prices paid index increased to 59.4 from 58.0 in December while the employment index rose slightly from 56 in December to 57.8 in January.
The business activity and production index fell to 59.7 from 61.2 while the new orders index fell to 57.7 from 62.7 in the month before.
Anthony Nieves, the Chair of the ISM’s business survey committee said that firms were concerned about the impact of the government shutdown, but overall, there was some optimism on the business conditions.
The services PMI comes on the back of the manufacturing PMI report that came out the week before. Data showed that growth in the U.S. manufacturing sector unexpectedly accelerated in January.
The ISM’s manufacturing PMI rose to 56.6 in January compared to a revised 54.3 in December. Economists had forecast that manufacturing activity would edge down to 54.0 in January.
IHS Markit’s services PMI cools in January
The decline in the services sector was corroborated by similar results from the IHS Markit’s services PMI survey. Data showed that while activity in the services sector expanded in January, the rise in the output was one of the slowest in the past four months.
New business growth increased at the weakest pace in more than a year.
Following the release of the flash services PMI estimates, IHS Markit’s services PMI for January showed that the final reading in the index stood at 54.2. This was down from December’s reading of 54.4.
New businesses increased a stable rate helped by the release of new product lines and domestic demand.
A notable decrease in the input cost inflation fell to a 22-month low. This led to a slower pace of job creation amid a backlog of work orders rising only slightly.
The output index came in at 54.4 for January, rising at the same pace as December.
Growth in the US
Chris Williamson, the chief economist for IHS Markit, said that the robust economic growth in the United States signaled by the PMI surveys at the start of the year contrasts the other PMI’s from economies such as the Eurozone, Japan, and China.
However, the activity in the U.S. economy stalled amid falling job creation in the sector and inflation also cooled down. He said that this partly reflected by the U.S. government shutdown although there is little evidence to blame it. Williamson noted that the declines could slow down demand from overseas.
The slowing services sector comes amid concerns about the global economy heading into the late growth cycle. This indicates that there could be a recession on the horizon.
The services sector dominates the U.S. economy and should dwarf the manufacturing industry. Despite the slowdown in the services sector, there has been a steady expansion. As of January, growth in the services sector continued to rise for 108 consecutive quarters.
The data comes as investors await the release of the fourth quarter GDP report from the United States. The fourth quarter GDP report should show a significant slowdown in the pace of GDP activity. Estimates show that the U.S. economy might have slowed to a speed of just 2.6% in the three months ending December 2018.