The US service industry is picking up;  factory orders are accelerating

The US service industry is picking up; factory orders are accelerating

  • Activity in the services sector picks up in November
  • Employment rebounds; supplier deliveries are improving
  • Factory orders rise 1.0% in October

WASHINGTON, Dec 5 (Reuters) – U.S. service-sector activity unexpectedly accelerated in November, with employment rebounding, offering further evidence of underlying economic dynamics. economy as it prepares for an anticipated recession next year.

Monday’s Institute for Supply Management (ISM) survey follows last Friday’s announcement that the economy continued to add jobs at a healthy pace in November, with wage growth accelerating . Consumer spending also rose strongly in October.

The strong data stream increases the risk that the Federal Reserve will continue to raise interest rates and raise its key rate above the recently projected 4.6%, where it could stay for some time. The U.S. central bank’s rate hike cycle is the fastest since the 1980s.

“While this is good news for the outlook for growth, it’s not so good for the Fed trying to rein in demand and reduce inflation,” said Priscilla Thiagamoorthy, economist at BMO Capital Markets at Toronto, on the data.

The ISM said its non-manufacturing PMI rose to 56.5 last month from 54.4 in October. It was boosted by an increase in trading activity to an 11-month high. Comments from companies included “winning more business” and “demand for our services is increasing”.

Economists polled by Reuters had expected the non-manufacturing PMI to slide to 53.3. A value above 50 indicates an expansion of the service sector, which accounts for more than two-thirds of US economic activity.

Economists ignored a survey from S&P Global confirming that its services PMI was stuck in contraction territory in November.

“We consider the overall still strong services ISM to be a better indicator of real activity than the much weaker S&P services PMI,” said Veronica Clark, an economist at Citi Group in New York.

The Fed has raised its key rate by 375 basis points this year, taking it from near zero to a range of 3.75% to 4.00%.

Thirteen service industries, including construction, health care and social assistance, retail trade and professional, scientific and technical services, recorded growth last month. But information, wholesale trade and business management and support services fell.

Companies in the construction sector indicated that “new business demands are strong”.

Professional, scientific and technical services firms noted that while job openings continued to dwindle, opportunities for growth remained “with demand for top talent still high and availability still rather scarce.”

Retailers said business was “stable”. Wholesalers said “business volume appears to be stabilizing based on a month-over-month comparison, although we are up significantly from the same month last year.”

Finding workers remains a challenge for transportation and warehousing companies.

Strong economic data prompted optimism that the widely feared economic downturn in 2023 would be short and sweet. Some economists are even betting that a recession could be avoided, with growth slowing down sharply.

The pick-up in activity in the services sector confirms that spending is shifting away from goods and inflation has shifted to services, indicating that overall price pressures in the economy could put some time to subside.

Manufacturing activity contracted in November for the first time in 2½ years, the ISM reported last week. Economists said a weighted average of services and manufacturing PMIs was consistent with an annualized pace of economic growth of 2% this quarter. The economy grew at a rate of 2.9% in the third quarter.

Stocks on Wall Street were trading lower. The dollar appreciated against a basket of currencies. US Treasury prices fell.

ISM services PMI


But weakness in manufacturing, which accounts for 11.3% of the US economy, is not yet evident in the so-called hard data.

A Commerce Department report on Monday showed factory orders jumped 1.0% in October after rising 0.3% in September. Economists had forecast orders rising 0.7%. Orders jumped 12.8% year-on-year in October.

October’s jump in factory orders was fueled by a 2.2% rise in transportation equipment orders, which followed a 2.3% rise in September. Orders for transportation equipment were boosted by increased orders for military and civilian aircraft. Motor vehicle orders rebounded 1.7%.

Machinery orders rose 1.5%. Orders for computers and electronics as well as electrical equipment, appliances and components also posted strong gains.

Factory orders

In November, the ISM measure of employment in the service industry fell to 51.5 from 49.1 in October. But with stagnant orders, further gains are likely to be limited.

The survey gauge of new orders received by service businesses fell to 56.0 from 56.5 in October. Exports fell to their lowest level since April 2020, likely due to slowing global growth and a strong dollar.

A measure of prices paid by service industries for inputs slipped to 70.0 from 70.7 in October as supply continued to improve. The survey’s measure of service industry supplier shipments fell to 53.8 from 56.2 in October.

A reading above 50 indicates slower deliveries. Companies continued to reduce the backlog of unfinished work.

“While we are seeing a reprieve in commodity prices, the slow descent of the services sector as a whole speaks to the fact that it will take time for inflation to return to target and that the Fed still has some work to do. to do in its fight against inflation,” said Shannon Seery, an economist at Wells Fargo in New York.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

#service #industry #picking #factory #orders #accelerating

Leave a Comment

Your email address will not be published. Required fields are marked *