SILVER SPRING, Md. -- Growth in the U.S. service industry, where most Americans work, pulled back in December after expanding at a record pace the previous two months.
The Institute for Supply Management reported Thursday that its monthly survey of service industries declined to a reading of 62 last month, from an all-time high of 69.1 in November. Any reading above 50 indicates growth.
The decline was the sharpest since April 2020 and suggests that the omicron variant of the coronavirus is beginning to take a toll on providers of in-person services like travel, dining out and entertainment. Even so, the services gauge remains well above pre-pandemic levels.
Since recording two months of contraction last year in April and May when the pandemic was raging, the overall index has now grown for 19 consecutive months.
Anthony Nieves, head of the institute's services sector survey committee, said growth in the services industry is still strong and that it didn't appear that the recent surge of the covid-19 omicron variant had any effect on the December activity in the sector. It's more likely to affect next month's activity, if the virus surge is not contained before then, he added.
The institute's gauge of business activity, which parallels the group's factory production measure, fell to a three-month low of 67.6 from a record in November.
Orders received by service providers dropped 8.2 points to 61.5, the lowest reading since February. The November orders index was the highest in data back to 1997.
A measure of employment cooled, falling to 54.9 from 56.5 in the previous month. Service providers have been struggling to hire and retain employees in a competitive labor market where businesses are offering higher wages and bonuses to lure workers.
The institute's inventories index contracted for the seventh-straight month, as continued supply chain logjams, along with strong demand, has made it difficult for companies to keep shelves stocked. Prices paid by services organizations for materials and services rose in December for the 55th consecutive month, to its third-highest reading ever of 82.5.
The inflation reading for services was at odds with a separate report from the institute Tuesday that showed that a gauge of prices paid by manufacturers slumped in December to the lowest level in more than a year.
While that weighed on the group's overall index of factory activity, demand indicators remained firm and suggested the sector will continue to expand at a healthy pace in coming months.
Some strengths in the services sector are the result of those supply chain troubles that are making it harder to meet increased demand. Longer supplier delivery times and rising prices register as strengths for the services sector.
Companies are still reporting some difficulty hiring with a job market healthier than its been since the pandemic began nearly two years ago. The unemployment rate fell to 4.2% last month, a level that most economists consider close to full employment.
Out of 18 service sector industries covered by the institute, 16 reported growth in December.
"Although there was a pullback for most of the indexes in December, the rate of growth remains strong for the services sector," Nieves said in a statement. "Respondents have indicated that they continue to struggle with inflation, supply chain disruptions, capacity constraints, logistical challenges and shortages of labor and materials."
The Federal Reserve said last month that in part because of the strong employment situation, its low-interest rate policies are no longer needed. Those low rates were intended to encourage more hiring and the Fed now has its eyes on an overheating economy, signaling that it would quickly raise rates to rein in inflation that has ballooned to four-decade highs.
Information for this article was contributed by Matt Ott of The Associated Press and by Olivia Rockeman of Bloomberg News (WPNS).