The Institute for Supply Management’s (ISM) services index declined to 49.6 last month, the lowest level since May 2020, from 56.5 in November, according to data released Friday.
The figure was below all projections in a Bloomberg survey of economists. Readings below 50 signal a contraction.
The nearly 7-point decline from the previous month was the largest since the period immediately after the start of the pandemic. It may have been affected by harsh winter conditions that led to Christmas travel chaos and widespread power outages.
Although the storm occurred at the end of the month, a sustained weakness in the indicators could suggest a lack of momentum in the economy going forward. Six sectors contracted in December, led by real estate and wholesale trade, according to ISM data.
The group’s business activity gauge, which parallels the ISM factory output index, fell 10 points to 54.7 last month. Order reading contracted further. Both declines were the largest since April 2020.
The disappointing services index brings the headline indicator more in line with ISM manufacturing data, which this week showed manufacturing activity slowing for the second month in December.
However, while the factory report shows that customer inventories are close to appropriate levels, the services data suggests that companies consider their inventories to be too high.
The inventory sentiment indicator shot up nearly 12 points to 55.9, the highest since June 2020. These numbers can be volatile on a month-to-month basis.
A gauge of prices paid by service providers declined for a second month, to 67.6. While this is the lowest level in almost two years, it is still higher than the long-term average.
Meanwhile, delivery times have drastically improved. The indicator for the group of purchasing managers reached 48.5 in December. Readings below 50 indicate faster delivery times and last month’s figure was the lowest in seven years, suggesting both declining demand and improving logistics.
The ISM services employment index fell below 50 for the second time in three months, signaling that some sectors reported a decline in payrolls. The report highlighted both the difficulty in filling jobs and the moderation in hiring amid the current economic uncertainty.
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