The barometer of business conditions in service-oriented companies witnessed a decline in December, reaching a seven-month low. This dip suggests a temporary setback for the US economy, according to the latest survey conducted by the Institute for Supply Management (ISM).
The ISM survey revealed a drop from 52.7% to 50.6% compared to the previous month. It is important to note that percentages above 50% are generally considered positive for economic growth. Throughout 2023, the index remained within the range of 50% to 55%.
Anthony Nieves, chairman of the survey, acknowledged that the services sector experienced a slowdown in growth rate during December. This can be attributed to a decrease in the rate of growth for new orders, as well as a contraction in employment. Nieves also highlighted concerns related to economic uncertainty, geopolitical events, and labor constraints.
Economists from The Wall Street Journal had initially predicted an ISM reading of 52.5% for the final month of the year.
Key Findings:
- The production gauge saw a rise of 1.5 points to 56.6%.
- The new-orders index witnessed a decline of 2.7 points to 52.8%.
- Contradictory to a significant increase in service jobs reported in the December employment report, the employment barometer fell by 7.4 points to 43.3%.
- The prices-paid index, acting as an inflation measure, slipped by 0.9 points to 57.4%.
The Broader View:
Despite the slowdown observed in the final quarter of 2023, it is worth noting that the US economy continues to expand at a reasonably healthy pace, even in the face of significantly higher interest rates.
Furthermore, there is potential support for the economy and the possibility of averting a recession if inflation continues to taper off, leading to a potential reduction in interest rates later in the year.
Market Response:
Following a strong US jobs report, the Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) showed positive movement in Friday trades.