Services Growth Slows in U.S., as Asia Activity Picks Up -- 2nd Update

By Gwynn Guilford and Paul Hannon

U.S. services companies reported slower growth last month and Asian economies recorded robust expansion, while Europe worsened amid rising coronavirus cases and fresh pandemic restrictions, according to purchasing-managers surveys.

Data firm IHS Markit said Wednesday that its U.S. services index was 54.8, the slowest growth in three months and down from 58.4 the prior month. A reading above 50 indicates growth, while a level below 50 signals contraction.

"Rising virus case numbers took an increasing toll on the U.S. economy in December, with business activity, order books and employment all growing at much reduced rates," said Chris Williamson, IHS Markit's chief business economist. "The slowdown was especially steep in the service sector, where stricter social distancing measures hit consumer-facing businesses."

By contrast, manufacturers across the globe recorded a faster rise in output as the year drew to a close. Factories in the U.S., Asia and Europe increased output, as a revival in trade boosted new orders.

The resilience of the global manufacturing sector contrasted with weakness in services businesses that rely on close physical proximity. Rising numbers of Covid-19 infections this fall and winter have led governments to impose fresh restrictions, including lockdowns in Europe.

Economists expect the U.S. economy grew in the fourth quarter -- though more slowly than a rebound that occurred in the prior three months.

But the eurozone economy likely contracted in the final three months of last year, according to the purchasing-managers surveys, as a wave of infections weighed on activity in the dominant services sector.

The purchasing-managers index for the eurozone's services sector rose to 46.4 in December from 41.7 in November.

The European Central Bank estimates that the eurozone economy shrank 2.2% in the final quarter of 2020.

Outside the eurozone, the U.K. government on Monday announced a strict new lockdown in response to a surge caused by a new variant of the coronavirus. The restrictions require the effective closure of the U.K.'s hospitality and live-entertainment industries.

That is likely to lead to a larger contraction in the services sector than was recorded in December, with an increased risk that the U.K. will slip back into recession, defined as two straight quarters of falling output.

"The services sector is in a dark place with more hardships expected in the first quarter," said Duncan Brock, group director at the U.K.'s Chartered Institute of Procurement & Supply, which helps compile the survey for that country.

Additional restrictions that are likely to weaken services activity aren't confined to Europe. In Japan, rising new infections led to a continued contraction in activity in the sector as 2020 drew to a close, and a rebound is unlikely to occur in the early part of this year. The government plans to announce a fresh state of emergency in Tokyo and three neighboring prefectures on Thursday.

Where new infections have been contained and restrictions eased, the services sector has rebounded quickly. That is the case in Australia, where the services PMI rose to 57 from 55.1, and in China, where growth eased slightly in December on weaker foreign demand. India also recorded a continued rise in activity, albeit at a slower pace.

Write to Gwynn Guilford at [e-mail] and Paul Hannon at [e-mail]

(END) Dow Jones Newswires

01-06-21 1325ET