The US services sector ended 2016 on a strong note, confirms the purchasing managers' index

 
Jasper Jolly
Follow Jasper
Republican Presidential Candidates Address 2015 Family Leadership Summit
Indicators on the US economy are pointing upwards as Donald Trump prepares to take office (Source: Getty)

The US services sector expanded in December at the same rate as November, continuing healthy growth in the month before Donald Trump becomes US President, according to an important indicator of economic activity.

The non-manufacturing purchasing managers’ index (PMI) stayed flat at 57.2, indicating a continued expansion in the sector for the 83rd month in a row, according to the Institute for Supply Management.

US services PMI veered wildly over the course of 2016, dipping below the long-run average of 54.24 on multiple occasions, but ended with the year’s two highest readings. Any measure above 50 indicates the sector is expanding.

Read more: Fed minutes: US interest rates could rise higher than expected this year

The continued strength in the services sector follows the manufacturing sector, which easily beat expectations earlier in the week.

The PMI survey showed strong demand, with new orders growing by 4.6 percentage points, although the rate of employment growth slowed significantly, in what may be a seen the US is reaching full employment.

A separate survey of PMI reported by Markit told a similar story, with a declining but still solid pace of expansion in the US services economy.

Commenting on the Markit PMI measure, Chris Williamson, chief business economist at IHS Markit said: “The US economy ended 2016 on a solid footing on which sustained growth looks set to be achieved in the coming year.”

Read more: US manufacturing PMI sees pre-Trump bounce

Services are responsible for almost 78 per cent of value added in US GDP growth, according to the World Bank, making them a vital indicator for policymakers in the US Federal Reserve.

In their latest minutes the Federal Open Market Committee, which sets interest rates, raised the prospect of tightening faster if the US economy receives a further boost from President-elect Trump’s apparent fiscal stimulus.

Dennis de Jong, managing director at UFX.com, said: “The above-expectations ISM non-manufacturing PMI for December will please Janet Yellen and her colleagues at the Fed, especially as it comes on the back of broadly encouraging financial data of recent weeks.”

Related articles