US services companies grew at a slightly faster pace

February 5, 2020 GMT

WASHINGTON (AP) — U.S. services companies grew at a slightly faster pace in January than the previous month, an indicator of continued steady expansion of the economy.

The Institute for Supply Management said Wednesday that its service-sector index edged up to 55.5 from 55 in December. Any reading above 50 signals an expansion. The index covers retail, health care, hotels and restaurants, and professional services, among other sectors.

Services companies added jobs at a slower pace last month than in December, while sales increased. Steady consumer spending, buttressed by a strong job market and decent pay gains, is driving a healthy service sector and broader economy.


A separate survey this week of manufacturers by the ISM showed that U.S. factories expanded unexpectedly in January, snapping a five-month losing streak. New orders, production and export orders all grew last month, but the rebound was narrow. Only eight of 18 industries reported growth, led by furniture companies. And the outbreak of a new virus in China threatens the supply chains that manufacturers rely on.

The industries covered by the ISM’s services survey, by contrast, make up nearly 90% of the economy.

Details of the new report were mixed. New orders increased last month at a faster rate. Ten of the 18 U.S. services industries reported growth in January. Five industries reported an increase in new export orders, including agriculture, finance and health care. But the pace of new hiring slowed, with some companies reporting a continued substantial workforce shortage. And order backlogs shrank for the fourth straight month.

Trade tensions are weighing less on companies than in previous months, after the U.S. and China reached a preliminary trade agreement on Dec. 13. President Donald Trump signed it on Jan. 15.

Still, an emerging trade fight between the U.S. and the European Union over a tax on digital services, levied by France, could hurt exports of consulting and other services in the coming months. The U.S. is considering retaliatory tariffs in response to the tax, an action that could spark a new trade battle.

Concerns have emerged over the viral outbreak in China. Some services companies reported they were closely monitoring developments, watching for the potential impact on medical supplies like surgical masks, for example.

Anthony Nieves, chair of the ISM’s services survey committee, said the coronavirus’ impact on service businesses should be minimal if it is able to be contained from reaching pandemic levels. “Unless it really gets out of control, we’ll be fine next month,” he said.


Overall, the January report shows “a continued path for sustained growth” in the services sector, Nieves said.

The U.S. economy expanded at a moderate 2.1% annual rate in the final three months of 2019, capping a year when a weak global landscape and a sharp pullback in business investment resulting from Trump’s trade fights combined to slow growth. For all of last year, economic growth at 2.3% was the weakest since Trump’s election in November 2016.