U.S. Service-Sector Activity Grew More Slowly in December -- 2nd Update

By Sharon NunnFeaturesDow Jones Newswires

The U.S. service sector lost momentum during the last two months of 2017, but still expanded at a healthy pace.

The Institute for Supply Management on Friday said its nonmanufacturing index fell 1.5 percentage points to 55.9 in December 2017. A reading above 50 indicates activity is expanding across service and other industries, while a number below 50 signals contraction. Economists surveyed by The Wall Street Journal had expected a December reading of 57.6.

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November also saw a decline in the ISM's index, but the two months of deceleration came after September and October posted intense growth that was likely related to post-hurricane bounce back in the services sector.

"Nothing alarming about the pull back of two months in a row, considering the high level of growth.... When you look at the services industries...they were going at a faster rate of growth for the third and fourth quarter. How sustainable would that growth be? It'd have to ease off the throttle," said Anthony Nieves, who oversees the ISM survey.

The overall U.S. economy has expanded at a healthy pace in recent months, bolstered by consumer and business spending.

Gross domestic product, a broad measure of goods and services produced across the U.S., expanded at a seasonally and inflation adjusted rate of 3.2% in the third quarter after notching a 3.1% growth rate in the second quarter, the Commerce Department said. That was the strongest six-month stretch of growth in three years.

Despite growth in the services sector decelerating at the end of 2017, the index still appears to match the U.S.'s strong economic streak.

The details of Friday's report were largely mixed. The business activity and production index declined 4.1 percentage points. The new-orders index also declined, but the index tracking employment increased, pointing to a solid labor market that is sitting at a 17-year low unemployment rate of 4.1%.

The ISM's prices index inched up slightly, mostly because of price increases for gas and certain food commodities, Mr. Nieves said. This parallels other gauges of inflation, which have showed subdued price growth in 2017, though a hurricane-fueled spike in gasoline prices pushed up broad price gauges in recent months.

Some 14 nonmanufacturing sectors reported growth during December, led by retail trade and utilities, while three sectors, including educational services, reported contraction.

A separate ISM index tracking the manufacturing sector grew in December to 59.7, the second-highest level since early 2011, the ISM said Wednesday, as a subindex of new orders -- a measure of sales at factories -- rose more than 5 points to 69.4, the highest since early 2004.

The ISM's Friday report, along with other economic indicators, point to continued growth into 2018.

"With business investment and consumer spending having strengthened in recent months and the Republicans' fiscal stimulus set to provide an additional boost over the coming months, we expect the economy to continue expanding at a healthy 2.5% to 3.0% annualized pace over the first half of this year," Andrew Hunter, U.S. economist for Capital Economics, said in a note to clients.

Write to Sharon Nunn at sharon.nunn@wsj.com

(END) Dow Jones Newswires

January 05, 2018 12:12 ET (17:12 GMT)