January data pointed to sustained growth of business activity across the U.S. service sector, but the latest increase in incoming new work was the slowest since the survey began in October 2009. Service providers nonetheless remain upbeat about their prospects for growth over the year ahead, and the latest survey indicated a further solid rise in payroll numbers. Meanwhile, lower fuel prices contributed to the slowest rise in average cost burdens since November 2010.
At 54.2 in January, the final seasonally adjusted Markit U.S. Services Business Activity Index picked up from 53.3 in December. The index has now registered above the 50.0 no-change threshold for fifteen consecutive months, but the latest reading signalled that the rate of service sector output growth was still much weaker than the peaks seen in mid-2014.
Adjusted for seasonal influences, the final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) posted 54.4 in January, up from 53.5 in December and above the neutral 50.0 threshold for the fifteenth consecutive month. The latest reading indicated that U.S. private sector output growth rebounded since the previous month, but was still the second-slowest since February 2014.
Slower new order growth continued to weigh on the performance of the service economy at the start of the year. The rate of new business expansion has weakened in each month since last October, and the latest rise was the least marked in almost five-and-a-half years of data collection. Some firms noted that greater caution among clients had led to more subdued sales growth at the start of 2015. Meanwhile, volumes of work-in-hand (but not yet completed) increased only marginally during January, with the rate backlog accumulation easing to the slowest for six months.
Despite a moderation in new business growth, service providers continued to add to their payroll numbers. Moreover, the latest survey indicated that overall job creation picked up slightly from the eight-month low recorded in December. Staff recruitment was linked to ongoing company expansion plans and confidence towards the business outlook. Service providers indicated positive sentiment in terms of their prospects for growth over the next 12 months, with the degree of optimism the second-highest since June 2014.
Average cost burdens increased only marginally in January. The overall rate of input price inflation eased to its weakest for just over four years. Meanwhile, average prices charged by service providers continued to rise at a subdued pace, which survey respondents widely attributed to reduced cost pressures at their units.
ISM reports that its own new orders index was unchanged at 59.2 in January. Its export orders index was down 1.0 to 52.5 while its import orders dropped 3.5 to 46.5 into contraction mode. That must mean that domestic orders were very strong.