The US services sector grew last month at its quickest pace since mid-2006 and private-sector hiring was triple economists' forecasts, though recovery across Europe remained mixed. Chinese service sector firms also continued to grow in December even as the government announced a series of measures to tamp down rising inflation.
--- US service sector grows at fastest pace since mid-2006
--- US private sector adds nearly 300,000 jobs in December
--- Europe services PMIs show disjointed recovery
--- Chinese services grow even as govt targets inflation
But the most promising signs came from the United States, adding to a string of recent economic data suggesting the world's biggest economy is finally starting to pick up steam. The Institute for Supply Management said Wednesday its non-manufacturing sector index for December rose to 57.1, the highest since May 2006 and its 12th straight month of expansion. The report comprises mainly service sector firms.
A separate report showing a surprise surge in private US employment in December added to hopes of firmer US growth and, economists said, bodes well for a more comprehensive government jobs report due on Friday. "The key from all the releases today is that small and mid-sized (US) businesses have picked up hiring," said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh.
Tim Ghriskey, chief investment officer at Solaris Asset Management, called the data "further indication that the economy continues to slowly but surely improve." Economic recovery in Europe, however, looks increasingly lopsided, with Germany and France spearheading growth while Spain and Ireland struggle.
The Markit Eurozone Services purchasing managers' index fell in December to 54.2 from 55.4, though the sector did manage to expand for a 16th straight month. PMIs measure the activities of thousands of businesses. "There is some optimism with regards to the US economy, but that is mixed with concerns over where Europe is going in the short- to medium-term," said Keith Bowman, equity analyst at Hargreaves Lansdown.
Concerns remain on the US side. Unemployment remains high, with the jobless rate expected at 9.7 percent in December, according to a recent Reuters poll. Growth in the ISM report's employment component in December slowed, which Barclays economist Nicholas Tenev said "casts some doubt" on the jump in private employment reported by ADP Employer Services.
"If hiring were surging in this way, presumably there would have been some improvement in the ISM employment series," they wrote in a note to clients. The services sector accounts for more than two-thirds of the US economic activity.
In China, the HSBC services PMI for December equaled the prior month's two-year low at 53.1, though the sector still showed firm growth even after a series of government measures aimed at controlling inflation. Speaking in an interview with a magazine run by the central bank, Governor Zhou Xiaochuan warned inflation was mounting and that more could be done to manage the growth of money, an indication that price pressures top the list of concerns.
And with tough budget austerity measures sweeping across Europe and a sovereign debt crisis afflicting weaker eurozone economies, Markit warned of worsening disparity among eurozone states underneath the strong headline number. "Near-record growth in Germany and strong expansion in France contrasted with a collapse in growth in Italy to near-stagnation and increased rates of decline in both Spain and Ireland," said Chris Williamson, Markit's chief economist.
Nobel Prize-winning economist Joseph Stiglitz on Wednesday warned that European economic policy was harming the region's return to prosperity and advocating concerted stimulus action there and in the United States. Asked what worried him most about the economic situation, he told French newspaper Liberation: "The path of austerity chosen by Europe, under pressure from the (financial) markets. It will delay emergence from the crisis and weaken the most vulnerable countries in the eurozone and European Union."