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January 6, 2022 2:30 PM, EST

Growth at Service Providers Sees Sharp Pullback From Record

Growth at Service Providers Sees Sharp Pullback From Record

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A measure of U.S. service providers pulled back abruptly in December after soaring to a record a month earlier, reflecting more moderate growth in business activity and orders.

The Institute for Supply Management’s gauge of services activity dropped to 62 from 69.1 a month earlier, according to data released Jan. 6. The December figure trailed all economists’ projections in a Bloomberg survey, which had a median estimate of 67. An index above 50 indicates expansion.

The 7.1-point decline was the sharpest since April 2020 and may suggest that the omicron variant of the coronavirus is beginning to take a toll on providers of in-person services like travel, dining out and entertainment. Even so, the services gauge remains well above pre-pandemic levels.

“Although there was a pullback for most of the indexes in December, the rate of growth remains strong for the services sector,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “Respondents have indicated that they continue to struggle with inflation, supply chain disruptions, capacity constraints, logistical challenges and shortages of labor and materials.”

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Nonetheless, the data hinted that supply chain constraints, while still elevated, may be starting to ease. The group’s supplier deliveries index dropped to a nine-month low of 63.9, from a November reading of 75.7. A little more than 36.4% of respondents reported slower delivery times, the smallest share since April.

Sixteen services industries reported overall growth last month, led by accommodation and food services, wholesale trade and construction.

The ISM gauge of business activity, which parallels the group’s factory production measure, fell to a three-month low of 67.6 from a record in November.

Orders received by service providers dropped 8.2 points to 61.5, the lowest reading since February. The November orders index was the highest in data back to 1997.

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A measure of employment cooled, falling to 54.9 from 56.5 in the prior month. Service providers have been struggling to hire and retain employees in a competitive labor market where businesses are offering higher wages and bonuses to lure workers.

The report also indicated that inflationary pressures continued to mount for service providers. The ISM index of prices paid for materials edged up to 82.5, from 82.3 in November.

The inflation reading for services was at odds with a separate report from the ISM on Jan. 4 that showed a gauge of prices paid by manufacturers slumped in December to the lowest level in more than a year.

While that weighed on the group’s overall index of factory activity, demand indicators remained firm and suggested the sector will continue to expand at a healthy pace in coming months.

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