Pandemic Cuts Into December US Service Sector Recovery

The US service sector continued to regain its footing in December after being hammered by Covid-19, but there were signs renewed business restrictions were exacting a toll, according to a survey published Thursday.

The Institute for Supply Management's (ISM) services index rose to 57.2 percent in December, a better-than-anticipated result that was above the key 50-percent level indicating expansion for the seventh straight month.

The gain was fueled by climbing production and orders, however, employment returned to contractionary territory with a 48.2 percent reading.

And survey respondents gave mixed reports on how skyrocketing Covid-19 cases in December were affecting their businesses.

"Deliveries as a whole are slowing down considerably. Between Covid-19, the holidays, and inclement weather of late, the remainder of (2020) stands to be very challenging regarding maintaining adequate materials for operations," a professional, scientific and technical services company told ISM.

The services sector was one of the hardest hit by business restrictions ordered across the United States starting in March to stop the spread of Covid-19, but has since posted a recovery.

New orders rose 58.5 percent last month, while production increased to 59.4 percent, according to the report.

Meanwhile, supplier deliveries index rose 5.8 points to 62.8 percent, indicating deliveries slowed at a faster rate than in November.

Oren Klachkin of Oxford Economics said the rise in supplier deliveries gave "artificial support" to the overall index in December, and though the sector is set to see its recovery accelerate, that will not happen right away.

"We expect the pace of the services recovery to be fairly tepid in the very near term, but growth will accelerate as we move further into 2021," he said.

ISM services survey chair Anthony Nieves said businesses were overall mixed about the impact of the nationwide surge in virus infections, but generally saw better days ahead.

"Most respondents are cautiously optimistic about business conditions with the recent approval and impending distribution of vaccines," he said.