US services activity shrinks for first time since May 2020

The Institute for Supply Management's services index dipped below a key 50% threshold

The dominant US services sector contracted for the first time in more than two years in December, survey data showed on Friday, as business activity slumped.

The Institute for Supply Management's services index dipped below a key 50-per cent threshold, indicating a contraction and surprising economists.

The key sector accounts for two-thirds of the world's largest economy and has held up since the height of the pandemic in spite of a forceful campaign by the Federal Reserve to cool demand and rein in surging inflation.

But the ISM services index "ended a 30-month period of growth, contracting for the first time since two straight months of sub-50 per cent readings in April and May 2020," said ISM survey chair Anthony Nieves.

The December reading came in at 49.6 per cent, with the business activity index and new orders index both plunging.

While supplier deliveries were faster in December as logistics problems eased, "employment contracted due to a combination of decreased hiring due to economic uncertainty and an inability to backfill open positions," Nieves said.

"The holiday season contributed to the continued growth in business activity, albeit at a slower rate," he added.