US services sector gauge picks up in Nov on improved business activity

By Augusta Saraiva

The US service sector expanded at a faster pace in November as business activity and employment picked up.

The Institute for Supply Management’s overall gauge of services rose 0.9 points to 52.7 last month, data out Tuesday showed. The index has remained above the 50 level that indicates expansion for all of this year, and has only dipped into contraction once since the onset of the pandemic.

The business activity index, which parallels ISM’s factory output gauge, climbed in November after posting the biggest drop this year in the prior month. A gauge of orders placed with service providers - a proxy of future demand - was unchanged at 55.5.

While consumer spending - the backbone of the US economy - has continuously surprised economists, in large part due to Americans’ incessant demand for services, forecasters don’t expect that level of strength to last much longer as employers scale back hiring and wage gains recede.

The government’s monthly jobs report due Friday is forecast to show a labor market that looks increasingly like the pre-pandemic one: with milder but still-healthy growth. The ISM services measure of employment edged up for the first time in three months in November.

Other headwinds, including soaring borrowing costs, lingering price pressures and the resumption of student-loan payments are all expected to take a toll on consumer demand going forward.

A metric of prices paid eased to a four-month low, indicating that costs are still rising but at a slower pace.

The gauge of inventories at service providers jumped by the most since May, coinciding with a smaller backlog of orders. An index of sentiment about the level of unsold goods surged to the highest level since the onset of the pandemic, which risks a pullback in orders placed with manufacturers or other service providers in coming months.

The ISM services gauge has painted a much more optimistic picture than the group’s manufacturing index. The report out last week showed US factory activity shrank for a 13th straight month in November, extending the worst streak in two decades.