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New business growth in US service sector weakest since October 2017

Staff Writer |
The U.S. service sector signalled a solid expansion in business activity in December, albeit the slowest for three-months.

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The rate of growth in new business eased to a 14-month low, but the pace of job creation picked up.

Subsequently, panellists registered a renewed fall in backlogs as pressure on capacity decreased.

Concerns surrounding the longevity of the upturn in new business led to the weakest expected rise in future output since December 2017.

Meanwhile, input prices rose at the slowest rate since August.

In line with a softer rise in cost burdens and less robust client demand, output charges increased at the weakest pace since December 2017.

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 54.4 in December, down from 54.7 in November, but up from the earlier reported flash figure of 53.6.

The upturn in business activity was driven by a further rise in new orders and increased repeat business.

Although down on growth rates seen earlier in the year, the upturn was solid overall.

The final quarterly average of 2018 matched that seen in the third quarter at 54.7.

The rate of new business growth eased for the third successive month in December, with service providers registering the slowest increase in new orders since October 2017.

Where a rise was reported, panellists linked this to favourable demand conditions.

However, some firms noted that higher interest rates and greater uncertainty had dampened client demand.

Similarly, service sector firms noted a fall in foreign client demand, with the New Export Business Index signalling the first monthly contraction in new business from abroad since August.

Although only fractional, the decrease was attributed to greater competition and ongoing global trade tensions.

In line with a weaker rise in new business, service providers registered a lower degree of optimism towards future business activity in December.

The level of positive sentiment was the least confident for a year amid concerns surrounding the longevity of new order growth.

Despite a contraction in the level of outstanding business, service sector firms noted a solid rise in employment.

The rate of job creation accelerated to a three-month high amid reports of shortages in capacity following a further increase in workloads.

Service providers across the U.S. continued to register a rise in input prices, albeit the weakest since August.

Where an increase in costs were reported, panellists linked this to higher wage and transportation costs, with some also noting that higher interest rates were pushing up cost burdens.

Subsequently, firms raised their selling prices in an effort to partly pass on higher input costs to clients.

The rate of charge inflation eased to a 12-month low, however, amid greater efforts to attract customers.

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