U.S. Services Demand Falls Despite Cheaper Oil

Despite hopes that cheaper oil would encourage more spending on other goods and services, non-manufacturing fell to its lowest growth rate since June.

Demand for non-manufacturing services in the United States, fell to 56.2 in December, lower than 59.3 in November. The employment index also fell to 56 from 56.7 in the prior month.

Despite hopes that cheaper oil would encourage more spending on other goods and services, non-manufacturing fell to its lowest growth rate since June.

Demand for non-manufacturing services in the United States, fell to 56.2 in December, lower than 59.3 in November. The employment index also fell to 56 from 56.7 in the prior month.

The slowdown indicates that the expansion of business activity in the U.S. is not accelerating, although the economy is still expanding and most survey respondents reported an upbeat outlook in the near term. “Comments from respondents are mostly positive about business conditions and the overall economy for year-end,” the ISM report noted, with many businesses reporting that the first quarter of 2015 is expected to be significantly stronger than the first quarter of 2014, when cold weather caused a substantial economic contraction across the United States.

Employment Strengthens

Although a slight fall in total employment activity was in the ISM report, more survey respondents reported higher employment in December than in November, with 22% of respondents saying there was more employment activity for the month, compared to 18% in November. Meanwhile, the number of respondents reporting lower employment fell from 14% in November to 12% in December.

Previously in 2014, ISM noted that labor was becoming a scarce commodity for many industries, as unemployment rates fell. While respondents did not note a similar decline in December, many respondents acknowledged that expansion of business locations was going to drive employment demands higher.

According to the Bureau of Labor Statistics, the unemployment rate in the United States held at 5.8% in November, with 9.1 million unemployed throughout the country. Long-term unemployed, measured as people who have been jobless for more than 26 weeks, remained at 2.8 million.

The job situation worsened for men in November while remaining constant for most other groups. Adult men saw unemployment rise to 5.4%, while adult women saw little change, at 5.3%. Teenager unemployment remained at 17.7% in November. 

New Orders, Prices Fall

Although total employment is strengthening, a fall in prices and new orders indicates that wage growth may be anemic in the short term. Prices fell considerably from the prior month’s reading of 54.4 to 49.5 in December, and the total number of respondents noting lower prices rose from 12% to 18%. New orders also fell from 61.4 to 58.9, with 17% of respondents reporting lower new orders versus 13% in the prior month.

In addition to lower new orders, light vehicle sales also indicate weakening demand. According to WardsAuto, a research firm for the automotive industry, light vehicle sales fell in December to 1.498 million, lower than originally forecast. Daily sales fell 6.4% on a year-over-year basis, indicating weaker demand for vehicles despite economic optimism more broadly.

Many economists expect weak orders and prices to encourage further price declines, which may accelerate deflationary trends that have caused inflation expectations to fall considerably in the United States. Thanks to the rising dollar and weak global demand, U.S. Treasury yields fell below 2% in early morning trading on Tuesday, while equities reversed an early gain before noon. The trend has surprised analysts who expected U.S. growth to outpace the global economy.