December data highlighted a sustained upturn in business activity and incoming new work across the U.S. service sector. Greater workloads and improved confidence towards the business outlook
in turn contributed to the fastest rise in payroll numbers since September 2015. However, the
latest survey indicated that inflationary pressures picked up again in December, with prices charged by service providers increasing at the steepest pace for one-and-a-half years.
At 53.9 in December, the seasonally adjusted Markit final U.S. Services Business Activity
Index dropped from 54.6 in November to signal the slowest upturn in service sector activity for three
months. Nonetheless, the latest reading was well above the neutral 50.0 threshold and pointed to a
solid pace of expansion. Moreover, the average reading during the final quarter of 2016 (54.4) was
the strongest since Q4 2015.
Survey respondents noted that improving domestic economic conditions and greater consumer
spending were factors supporting higher levels of business activity at the end of 2016. Reflecting this, latest data indicated that growth of new work remained close to the 12-month peak seen in
November. Increased volumes of new business contributed to renewed pressures on operating
capacity, although the rate of backlog accumulation was only marginal in December.
Service providers reported a robust and accelerated upturn in payroll numbers at the end of
the year. The rate of job creation was the fastest since late-2015, which survey respondents linked to ongoing expansion plans and rising confidence regarding the business outlook.
December data signalled a further rebound in business optimism from the post-crisis low seen in
June, and the latest reading was one of the highest recorded since the summer of 2015. Anecdotal
evidence mainly cited expectations of a sustained domestic economic recovery over the course of
2017. Some firms also commented on hopes of a boost to business conditions following the
Meanwhile, input cost inflation accelerated in December and was the joint-fastest since July
2015. Reports from survey respondents suggested that suppliers had passed on higher fuel and raw
material prices. A number of firms also pointed to increased food costs. Latest data indicated a solid
rise in average prices charged by service providers and the rate of inflation was the steepest recorded since June 2015.
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index registered 54.1 in
December, down slightly from 54.9 in November but above the 50.0 no-change mark for the tenth consecutive month. Moreover, the average reading for the final quarter of 2016 (54.6) was the
strongest since Q4 2015.
Chris Williamson, Chief Business Economist at IHS Markit:
The surveys signal GDP annualized growth of approximately 2.0% in the fourth quarter, a pace
which we expect to be met – if not slightly exceeded – through 2017.
The upturn also continues to deliver an impressive rate of job creation, especially given the current
high level of employment – largely reflecting improved confidence about the economic outlook.