Service sector activity in the U.S. unexpectedly grew at a faster pace in the month of December, according to a report released by the Institute for Supply Management on Thursday.
The ISM said its services PMI rose to 57.2 in December from 55.9 in November, with a reading above 50 indicating growth in the service sector. Economists had expected the index to edge down to 54.6.
“The composite index indicated growth for the seventh consecutive month after a two-month contraction in April and May,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee.
Nieves said respondents’ comments about business conditions and the economy were mixed but noted most are “cautiously optimistic about business conditions with the recent approval and impending distribution of vaccines.”
The unexpected uptick by the headline index came as the business activity index inched up to 59.4 in December from 58.0 in November, while the new orders index crept up to 58.5 from 57.2.
The supplier deliveries index also jumped to 62.8 in December from 57.0 in November, although the index is inversed and a reading of above 50 percent indicates slower deliveries.
Meanwhile, the report said the employment index slid to 48.2 in December from 51.5 in November, indicating a contraction in employment in the service sector after three consecutive months of growth.
The prices index also fell to 64.8 in December from 66.1 in November, pointing to a modest slowdown in the pace of price growth.
Andrew Hunter, Senior U.S. Economist at Capital Economics, called the unexpected increase by the services PMI “hard to square with the range of other evidence showing that the latest wave of virus cases and restrictions is starting to weigh more heavily on the economy, particularly services.”
“Like the manufacturing survey released earlier this week, the headline services reading received an artificial boost from a jump in the supplier deliveries component, which reflects virus-related disruption rather than stronger demand,” Hunter said.
He added, “But the business activity and new orders components also picked up, which is at odds with the generally downbeat tone of the comments in the press release and with the recent dips in the other services-sector surveys.”
A separate report released by the ISM on Tuesday showed an unexpected acceleration in the pace of growth in U.S. manufacturing activity in the month of December.
The ISM said its manufacturing PMI climbed to 60.7 in December after dipping to 57.5 in November, with a reading above 50 indicating growth. Economists had expected the index to edge down to 56.6.
With the unexpected increase, the manufacturing index reached its highest level since hitting 61.3 in August of 2018.
However, economists noted the headline index was artificially boosted by a jump by the supplier deliveries index, which suggested deliveries slowed at a faster rate.