ISM Service Sector Index Misses Mark, With Subindexes Indicating Contraction

A closely watched index of growth in the dominant U.S. services sector missed economists’ expectations for December, hitting a 6-month low across the board. Subindexes on employment, orders and business activity all declined.

The Institute for Supply Management said on Tuesday its services index fell to 56.2 for December, juxtaposed to 59.3 in November, a month that traditionally lags in performance compared to the height of the holiday season. The December figure fell short of expectations in a poll of economists conducted by Reuters, which forecast a 58 reading.

Worse still, two subindexes in the survey — prices and order backlogs — actually fell below 50, which indicates a contraction.

Readings above 50 suggest expansion, while below indicate contraction.

Indexes on both imports and exports saw significant declines, while the reading on new orders fell to 58.9, which is the lowest reading since April.

The service sector data is particularly concerning considering the terrible December manufacturing data, placing two significant sectors of the labor market either in or nearly in contraction territory.