By Maria Martinez

Activity in the U.S. services sector slowed its expansion in December, driven by a downturn in new business due to an increase in Covid-19 infections across the country, data from IHS Markit showed Wednesday.

The final reading for the U.S. Services Purchasing Managers' Index for December was 54.8, down from the 58.4 reading in November and below the earlier released flash estimate of 55.3.

Economists polled by The Wall Street Journal expected the final services PMI to come in at 55.1, slightly down from its preliminary reading.

Although the rate of expansion was slightly stronger than the series average, it marked a significantly slower upturn in output, as a rise in virus cases dampened client demand, IHS Markit said.

The U.S. Services PMI is a survey-based measure of activity in industries such as communications, finances or consumer services. A level above 50 indicates expansion, while a reading below 50 signals contraction.

"While the survey data remained sufficiently resilient to indicate that GDP continued to expand at a relatively robust rate in the fourth quarter, the near-term outlook has deteriorated," said Chris Williamson, chief business economist at IHS Markit.

The latest increase in total new business was the slowest for four months, due to the difficulties among consumer-facing firms following another surge in virus cases and additional social distancing restrictions, the report said.

Alongside a slowdown in domestic demand growth, service sector firms registered the first contraction in new business from abroad since May, driven by greater travel restrictions, IHS Markit said.

"Rising case numbers represent an increased risk to the economy in the coming weeks, and hopes rest to a large extent on pandemic stimulus lifting the economy to prevent another downturn," Mr. Williamson said.

The degree of business confidence slipped in December to its lowest level in three months, as the post-election boost to optimism waned and a resurgence in virus cases hampered demand and business operations, the report said.

IHS Markit said the Composite PMI Index was 55.3 in December, down from 58.6 in November. The rate of growth was the slowest in three months.

Write to Maria Martinez at maria.martinez@wsj.com

(END) Dow Jones Newswires

01-06-21 1030ET