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Services sector expanded in December

The huge U.S. services sector grew for the ninth month in a row in December but at a much slower pace than analysts were expecting, according to a report issued on Tuesday.
/ Source: Reuters

The huge U.S. services sector grew for the ninth month in a row in December, albeit at a much slower pace than expected, but analysts said Tuesday expansion would continue as the economy recovers.

The Institute for Supply Management’s non-manufacturing index dropped to 58.6 in December from 60.1 in November, falling far short of Wall Street forecasts for a rise to 61.3.

Job creation in the sector, which accounts for nearly 80 percent of the U.S. economy, tailed off somewhat, with the much-scrutinized employment index nudging down to 54.0 from 54.9 in November, its highest since March 2000.

“The ISM report was a little lower than expected, but it was still a good number. Outside of manufacturing, the economy is performing quite well, and there should be continued job creation,” said Rick Egelton, deputy chief economist at Bank of Montreal in Canada.

A reading above 50 in the survey indicates growth in the services sector, which includes business that range from hotels and restaurants to travel agencies and chain stores.

Although the ISM’s six-year-old service activity reading fell short of expectations on some fronts, analysts said there were plenty of encouraging signs to dispel any concern that the economy could be stalling after a dazzling third quarter.

“I don’t think the drop in December is anything to be concerned about. It’s a volatile series and 58.6 is well above the line between expansion and contraction. We’ve got good growth in the service sector,” said Lea Tyler, U.S. economist at Oxford Economics USA in Wayne, Pennsylvania.

New orders picked up in December after dropping the month before, with that index climbing to 61.2 from 60.1, while the ISM’s prices index rose to 60.0 in December from 58.0.

“Even though the market may be a bit disappointed in this, the report was still indicative of a pretty strong economy; it’s just a question of how strong,” Bank of Montreal’s Egelton said.
Data earlier showed a similar trend in the key services sectors in the euro zone and Britain, where growth appeared to be flagging, but remained pretty robust nonetheless.