By Jeffry Bartash, Market Watch—
Companies in the U.S. service sector such as retail, banking and health care grew in January at the slowest pace in almost two years, adding to a drumbeat of data suggesting the economy has softened
The Institute for Supply Management said its nonmanufacturing index fell to 53.5% from 55.8% in December. Economists polled by MarketWatch had forecast a 55.2% reading.
Any number over 50% indicates more businesses are expanding instead of contracting, but the ISM service index has dropped three straight months and is at the lowest level since February 2014.
The slowdown suggests that weakness among energy producers, manufacturers and major exporters may have spread to the much larger service side of the economy that employs the vast majority of Americans.
“This report will only add to fears that the overall economy is weakening,” said Jim O’Sullivan, chief U.S. economist of High Frequency Economics. The survey is compiled from a questionnaire of the executives who buy supplies for their companies; it tends to rise in fall in tandem with the broader economy.
Most executives had a positive outlook about business conditions, ISM said, but they are more worried about declining stock markets and a shaky global economy weighing on the U.S.
“Sales have improved,” said one executive at a retailer. “We are feeling more optimism, but remain concerned about the impact of global unrest.”
A sign of that anxiety: The employment fell 4.2 points to 52.1% to hit the lowest rate in a year.
The ISM’s employment survey for manufacturers released earlier this week was even weaker, falling to a six-year bottom that marked the lowest level since the end of the Great Recession.
Taken together, the two ISM employment indexes point to a much slower pace of hiring in January after a large 292,000 gain in new jobs in December. Another labor-market gauge produced by payroll processor ADP also found that hiring came back to earth in early 2016.