Service Sector Economy: Slower Growth But Strong Hiring

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The Institute for Supply Management reported Monday that its index for service-sector business activity fell 0.9 points to 53 in December from 53.9 in November. The decline indicates that composite non-manufacturing business activity is still growing but at a slower rate than in November. Economists expected the index to increase to 54.8.

The non-manufacturing service sector accounts for the majority of U.S. economic activity, so the ISM report can be used to help diagnose the health of the overall business sector. In particular, market watchers have their eye on the business activity/production index, which fell 0.3 points to 55.2 in November, also indicating slower growth.

The bad news out of the ISM report is the 7-point decline in the new orders component, which landed in contraction territory at 49.4 for December. This is the first negative reading of the new orders component since 2009. There is some solace, though, in a 3.3-point gain in the employment index to 55.8. Growth may be mixed and decelerating, but the sector is still growing.

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