U.S. Service Sector Growth Shows Slight Acceleration In January

(RTTNews) - After reporting a notable slowdown in the pace of growth in U.S. service sector activity in the previous month, the Institute for Supply Management released a report on Wednesday showing a modest uptick by its index of activity in the sector in January.

The ISM said its non-manufacturing index inched up to 56.7 in January from an upwardly revised 56.5 in December, with a reading above 50 indicating growth in the service sector.

Economists had expected the index to edge up to 56.5 from the 56.2 originally reported for the previous month.

With the modest increase, the non-manufacturing index regained some ground after falling to a six-month low in December.

Paul Ashworth, Senior U.S. Economist at Capital Economics, said the uptick by the index "illustrates that the boost to households' purchasing power from lower energy prices is driving domestic demand higher, even as the stronger dollar is squeezing export-orientated manufacturers."

"Since manufacturing accounts for little more than 10% of the U.S. economy these days, this is consistent with our view that recent market moves (lower oil prices, lower long-term interest rates and a stronger dollar) will be a net positive for real GDP growth," he added.

The modest increase by the non-manufacturing index was partly to an acceleration in business activity, as the business activity index climbed to 61.5 in January from 58.6 in December.

The new orders index also inched up to 59.5 in January from 59.2 in December, indicating a modest acceleration in the pace of growth.

Meanwhile, the report said the employment index fell to 51.6 in January from 55.7 in the previous month, hitting its lowest level since February of 2014.

The prices index also slid to 45.5 in January from 49.8 in December, with the reading below 50 indicating a decrease in prices.

On Monday, the ISM released a separate report showing that manufacturing activity grew at a slower than expected pace in January due in part to problems caused by a West Coast dock slowdown.

The ISM said its purchasing managers index fell to 53.5 in January from 55.1 in December, hitting its lowest level in a year. Economists had expected the index to show a more modest drop to 54.5.