US Service Sector Activity Near 2-Year High in January: ISM Survey

February 4, 2021 Updated: February 4, 2021

WASHINGTON—U.S. services industry activity raced to its highest level in nearly two years in January, with growth in new orders and employment accelerating, raising cautious optimism that the beleaguered sector was turning the corner.

The Institute for Supply Management (ISM) said on Feb. 3 its non-manufacturing activity index increased to a reading of 58.7 last month. That was the highest reading since February 2019 and followed 57.7 in December. The index is now above its pre-pandemic level.

A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index at 56.8. The ISM revised data going back to January 2012.

The services industry has borne the brunt of the COVID-19 pandemic, which has forced authorities to impose restrictions on businesses like restaurants and bars. Consumers have also stayed away from other businesses and venues which attract crowds.

The pandemic has shifted spending away from services to goods. Consumer spending on services is about 7.5 percent lower than before the outbreak of the virus in the United States. The distribution of vaccines has offered hope of bringing the pandemic under control.

The ISM survey’s measure of new orders for the services industry shot up to a six-month high of 61.8 from a reading of 58.6 in December. Backlog orders recovered, although export orders contracted as a global resurgence in the coronavirus led to renewed lockdowns in some of the United States’ trade partners.

The survey’s index of services industry employment rebounded to 55.2, the highest reading in nearly a year, from 48.7 in December. That supports expectations that the economy regained jobs in January after nonfarm payrolls fell in December for the first time in eight months.

The ISM reported on Feb. 1 that manufacturers hired more workers in January, though a flare-up in COVID-19 infections caused labor shortages at factories and their suppliers.

According to a Reuters poll of economists, the government’s employment report on Feb. 5 is likely to show nonfarm payrolls increased by 50,000 jobs in January after declining by 140,000 in December. Employment remains 10 million jobs below the pre-pandemic peak.

By Lucia Mutikani