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Ahead of the Bell: US Services Index

The Institute for Supply Management reports on growth at U.S. services firms in January. The ISM will release its services index at 10 a.m. Eastern on Wednesday.

SMALL GAIN: Economists forecast that the index rose to 54 in January, according to a survey by FactSet. That would be up from 53 in the previous month. Any reading above 50 indicates growth. The ISM is a trade group of purchasing managers.

SLOWER PACE: Service companies are still expanding, but they're growing a little less quickly.

Growth has tailed off since the index reached an eight-year high of 58.6 in August. It has averaged 54.7 over the past 12 months.

Some of that cooling off came from winter storms and cold weather that hampered business in December.

The ISM sales index dipped December and new orders plummeted to a four-year low. One company in the arts, entertainment and recreation sector told the ISM that severe weather meant that "both customers and employees were unable to reach the workplace." That suggests that the decline might be temporary, although January also had its share of brutal storms and freezing temperatures.

A separate ISM survey on manufacturing showed little improvement last month, partially because cold weather delayed shipments of raw materials and caused some factories to shut down.

But hiring by service companies improved in December, a sign that continued gains are expected in 2014.

The service survey covers businesses that employ 90 percent of the workforce, including retail, construction, health care and financial services firms.

CONSUMER SPENDING: The service survey usually tracks with consumer spending, which has been a bright spot coming into this year.

Shopping accelerated in the final three months of last year, after a modest improvement for most of 2013.

Consumer spending rose at an annualized 3.3 percent in the October-December quarter, the best rate in three years.

Clothiers, grocers and restaurants all enjoyed strong gains in December, as did online merchants. But sales at department stores tumbled during the holiday shopping season compared with the year prior.

MIXED MOMENTUM: The economy has lost some momentum after expanding at an annualized 3.2 percent rate in the final quarter of 2013.

Orders to U.S. factories fell 1.5 percent in December. Incomes were practically flat that month as well. Auto sales slipped 3 percent in January. And the U.S. stock market plunged in recent weeks on turmoil coming out of emerging market economies such as China and Turkey.

An increase in the ISM's services index would suggest that the economy is prepared to rebound from this cold spell. Many economists project overall economic growth this year of 3 percent or more, the strongest improvement since 2005.

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