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Service Companies Outpace Manufacturers, Sustaining Economy


Craig Warga/Bloomberg
American service companies continued to outperform their manufacturing counterparts in December as orders and employment picked up, indicating the world’s largest economy will keep expanding this year.

The Institute for Supply Management’s nonmanufacturing index, which covers almost 90% of the economy, came in at 55.3 last month, with readings greater than 50 signaling growth. While the level is down from November’s 55.9 and the weakest since April 2014, the drop was caused by a plunge in the deliveries component that indicates suppliers had fewer order backlogs to process.

The gap between the Tempe, Arizona-based ISM’s services and manufacturing gauges has averaged almost eight points over the past six months, the widest over a similar period since 2001. The disparity signals retail and health care are among the industries less affected by the slowdown in global demand and surge in the value of the dollar that have hurt U.S. factories.

“The nonmanufacturing index is more reflective of domestic demand, whereas the manufacturing index is more exposed to foreign demand, and, of course, exports have been weak,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, said before the report. “Overall, growth is still pretty solid.”

The median forecast in a Bloomberg News survey of 71 economists called for a December reading of 56, with estimates ranging from 54 to 57.5. The measure averaged 57.1 in 2015, up from 56.3 in the previous year and the best annual performance in a decade.

The new orders gauge climbed in December to 58.2 from 57.5 the prior month, while a measure of services employment increased to 55.7 from 55.

The business activity index, which parallels ISM’s factory production gauge, advanced to 58.7 last month from 58.2 in November. A measure of prices paid declined to 49.7, indicating costs were easing, from 50.3.

The drop in the headline figure was due to a slump in the supplier deliveries gauge, which measures how quickly companies are able to fill orders. That index slumped to a three-year low of 48.5 from 53 the prior month. Readings below 50 mean delivery times quickened.

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By Michelle Jamrisko
Bloomberg News


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