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US Service Sector Strong in December, But Pandemic Restrictions Still A Challenge

Jay Brahach January 7, 2021

The Institute for Supply Management’s (ISM) Services PMI increased by 1.3 percentage points in December, measuring in at 57.2%, continuing the trajectory of growth within the services sector for the seventh consecutive month and beating expectations by 2.7 percentage points.

A reading at this level corresponds to about a 2.9% increase in Real GDP on an annualized basis.

Despite the service-sector data beating expectations, the trade-weighted US dollar index (DXY), already solidly higher on the session, remained largely unchanged on the back of this data. While the headline figure looks to be positive, the reports suggests several areas for concern in the sector as the pandemic worsens through the winter months.

Industries such as Arts, Entertainment, Food Services and Real Estate have all been hard hit by the recent round of lockdowns, as businesses deal with restrictions on movement and loss of labor due to quarantine restrictions. These businesses have indicated they expect a rebound by late January and are optimistic about the vaccine rollout.

The Supplier Deliveries Index measured in at 64.8% in December, up from 57% in November. This is quite an interesting data point, as an increase corresponds to a slowdown in delivery times. Usually this would be a sign of increased economic activity due to a higher volume of orders, but lockdown restrictions were compounding this effect in December.

The Transport and Logistics space is performing relatively well, despite these frictions. The construction space, however, has seen projects paused due to shipping delays as well as a quarantined workforce.

The healthcare sector, of course, has been challenged by COVID-19. The survey correspondents within the report indicated PPE equipment is still in short supply across all categories, and hospital ICU units are close to capacity. From a financial point of view, the sector has seen a loss to revenue as regular surgeries cannot go ahead as usual.

Overall, economic activity is up in the services sector, but sentiment would indicate the winter is still going to be a challenge. Product shortages remain to be an issue, and COVID-related restrictions are likely to get tighter before the vaccines are widely distributed. These industries will have to weather the storm for a few more months.

Jay Brahach

Account Executive & Currency Analyst