Markit Flash U.S. Services PMI: Service Sector Remains in Expansion Mode

Estimated reading time: 2 minutes

Key points:

• Weakest rise in U.S. service sector output since December 2014
• Sharp slowdown in new business growth
• Business confidence among service providers slips to its lowest since August 2010 
• Solid pace of staff hiring maintained in December 

December data highlighted a renewed slowdown in output growth across the U.S. service economy. The seasonally adjusted Markit Flash U.S. Services PMI Business Activity Index1 – which is based on approximately 85% of usual monthly replies – registered 53.7 in December, down from 56.1 and the lowest reading for 12 months. Although comfortably above the 50.0 threshold that separates expansion from contraction, the headline index signalled a softer rate of growth than seen on average since the survey began in late-2009 (55.8). 

Reports from survey respondents suggested that improving domestic economic conditions remained a tailwind to growth in December. However, some service providers noted a more subdued willingness to spend among clients. Reflecting this, latest data indicated that incoming new work expanded at the slowest pace since January. Weaker growth of new business contributed to a decrease in backlogs of work across the service sector for the fifth month running in December.    

Despite a moderation in new business growth and a corresponding fall in capacity pressures, the latest survey pointed to resilient job creation among U.S. service sector companies. Increased payroll numbers have been recorded in each month since March 2010, and the latest upturn was broadly in line with the average over this period. Anecdotal evidence pointed to job hiring in response to new product launches and long-term expansion plans.  

Service providers were optimistic overall about their prospects for growth over the course of 2016, with just over one-third (34%) expecting a rise in business activity while only 5% forecast a reduction. However, the degree of positive sentiment dipped to its lowest recorded for just over five years. The subdued global economic outlook, election uncertainty and softer demand from the oil and gas sector were among the factors cited as weighing on business prospects.

On the prices front, latest data pointed to another slowdown in cost inflation across the service economy. Average input prices increased at the weakest pace since February, helped by falling transportation costs and commodity prices. At the same time, service providers noted that their output charges were little-changed in December.

Markit Flash U.S. Composite PMI

At 53.5 in December, down from 55.9 in November, the seasonally adjusted Markit Flash U.S. Composite PMI Output Index pointed to a solid expansion of private sector output at the end of 2015. However, the latest rise was the weakest for 12 months, reflecting softer contributions to growth from both services and manufacturing (‘flash’ manufacturing output index at 52.7, down from 54.8 in November).   The composite index is based on original survey data from the Markit U.S. Services PMI and the Markit U.S. Manufacturing PMI.