US services sector shrinks by surprise in December, ISM says

Services sector activity in the US shrank unexpectedly at the end of 2022, the results of a closely followed survey revealed.

The Institute for Supply Management's Purchasing Managers' Index for the sector fell from 56.5 in November to 49.6 in December.

Economists at Barclays Research had penciled-in a reading of 54.5 (consensus: 55.1).

Friday's report appeared to dovetail well with the breakdown in hiring in trends by sectors seen in other reports published over the course of the same week.

The key new orders sub-index led the drop, falling from 56.0 to 45.2, alongside a decline in a sub-index for business activity from 64.7 to 54.7.

One of the other key subindices, that for prices paid, meanwhile fell back more modestly, from 70.0 to 67.6.

So too the sub-index for employment which receded from 51.5 to 49.8.

"The data for the past couple of months demonstrate clearly that this is a volatile survey and individual monthly numbers can't be taken unduly seriously, but the headline number is startling and a repeat performance in January should set alarm bells ringing," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"Although ISM Services disappointed in December, we are still quite a ways from a significant slowdown. Also, it's important to remember that softer readings on the economy are a feature, not a bug, of the Fed's rate hiking campaign," chipped in Oren Klachkin, lead US economist at Oxford Economics.

"Looking ahead, we look for restrictive monetary policy and tighter financial conditions to constrain services sector activity. We don't think a soft landing is likely, but the latest economic data suggest there is a risk this scenario may play out."

-- More to follow --