December data highlighted that the U.S. service sector ended the year on a weaker growth footing, with business activity and incoming new work both expanding at slower rates than in November. Staffing numbers continued to rise at a solid pace, but the latest survey suggested a greater degree of caution about the business outlook.
At 54.3 in December, the final Markit U.S. Services PMI™ Business Activity Index was down from 56.1 in November and at its lowest level for 11 months (flash reading: 53.7). Moreover, the latest reading was weaker than the average seen since the survey began in late-2009 (55.8). A number of service providers suggested that weaker confidence among clients, alongside uncertainty about the business outlook, had resulted in slower output growth in December.
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index posted 54.0 in December (flash reading: 53.5), down from 55.9 in November, to signal the slowest expansion of private sector business activity for 12 months.
Softer output growth reflected a weaker contribution from both services (54.3) and manufacturing (52.5) at the end of 2015.
In line with the trend for business activity, latest data pointed to the weakest rise in new work received by service sector companies since the adverse-weather related slowdown recorded in January 2015. Although the overall rate of new business growth remained solid in December, some panel members noted that clients had adopted a wait-and-see approach to spending decisions amid uncertainty about the economic outlook.
Volumes of work outstanding continued to fall in December, thereby extending the current period of decline to five months. According to survey respondents, weaker new business growth and a lack of pressure on operating capacity had enabled a further reduction in backlogs of work.
At the same time, a solid rate of job creation was maintained across the service economy at the end of 2015. Higher levels of employment have been recorded in each month since March 2010. However, service providers signalled the least positive expectations for business activity over the year ahead since July 2015.
Input price inflation continued to moderate in December, with service providers indicating the slowest rise in their average cost burdens for ten months. A number of firms cited lower fuel and transportation costs. Softer cost pressures in turn contributed to the weakest rise in service sector output charges in the current three-month period of sustained inflation.