Eight Industries Contract In ISM Service Sector Index, Employment Declines

A gauge of service sector growth in the U.S. came in stronger than expected in January, but remained near six-month lows as an index on employment bottomed out. The Institute for Supply Management on Wednesday said its services index was 56.7 in January, up slightly from a revised 56.5 in December.

A poll conducted by Reuters showed economists were expecting a reading of 56.3. Despite, the ISM’s Non-Manufacturing Business Activity Index reflecting growth for the 66th consecutive month at a faster rate, eight industries reported contraction.

The eight non-manufacturing industries reporting growth in January — listed in order — are: Accommodation & Food Services; Finance & Insurance; Management of Companies & Support Services; Public Administration; Wholesale Trade; Information; Health Care & Social Assistance; and Retail Trade. The eight industries reporting contraction in January — listed in order — are: Mining; Arts, Entertainment & Recreation; Construction; Other Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Educational Services; and Transportation & Warehousing.

The contraction is particularly concerning in light of the recent ADP private sector jobs report released Wednesday, which found a labor market weakening in job creation. Service sector employment increased by 183,000 in January, down from 207,000 in December.

The NMI (Non-Manufacturing Index) is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. The survey’s employment index fell to 51.6 from 55.7, while two other components, prices and order backlogs, came in well below the 50 level that indicates contraction for a second straight month. A third component, imports, entered contraction territory for the first time since February 2014.

The rise in the overall index was fueled by a strong rebound in business activity. That subindex rose from to 61.5, which is its highest level since September and up from 58.6 in December to 61.5.