U.S. service sector growth slows slightly in December, but stronger optimism about business outlook recorded

The U.S. service providers showed a strong upturn in business activity in December, although the pace of expansion eased further from October’s recent peak in the midst of a slightly weaker rise in new work. However, the most recent survey showed acceleration in jobs growth for the third consecutive month and a more robust degree of optimism regarding the year-ahead business outlook. In the meantime, cost pressures intensified in December, with the latest increase in input prices one of the most rapid seen since mid-2015.

Seasonally adjusted Markit Flash U.S. Services PMI Business Activity Index came in at 53.4 in December, slightly down from 54.6 in November. The average reading for the final quarter of this year indicated towards the steepest upturn in service sector output since the fourth quarter of 2015, noted Markit.

Higher business activity levels were attributed to a sustained rebound in client demand in December. The pace of new business growth alleviated from the recent peak seen in November; however, it stayed one of the most rapid seen in the past 12 months. Survey respondents commented on rebounding domestic economic conditions and a general upturn in willingness to spend amongst clients.

Data in December underlined a renewed increase in backlogs of work throughout the service economy, greatly driven by stronger volumes of sales and associated pressures on operating capacity. This encouraged greater staff hiring in the most recent survey period, with the pace of job creation the most rapid since March.

According to service providers, a strong degree of optimism about the year-ahead business outlook is recorded in December. The latest reading was quite above the survey-record low seen in June; however, it was slightly weaker than the average seen since the survey started in late-2009. Anecdotal evidence implied that stronger pipelines of new work and a likely improvement in the U.S. economic conditions had supported service sector optimism regarding the 2017 outlook.

In the meantime, input cost inflation rebounded in December to its second-fastest since July 2015. Survey respondents commented on increasing raw material costs, and increased food prices in particular. A strong and accelerated increase in operating costs led to higher prices charged by service providers in December. Even if it is just modest, the latest rise n prices charged was one of the biggest seen since June 2015, said Markit.