Service Industries Grow at Slower Pace in November
Service industries in the United States expanded in November at the slowest pace in six months, indicating malaise in manufacturing is impeding progress in other parts of the economy.
The Institute for Supply Management’s non-manufacturing index declined to 55.9 from October’s 59.1, the biggest monthly decrease in seven years, the Tempe, Arizona-based group said Dec. 3. A gauge above 50 denotes expansion, and the median estimate in a Bloomberg survey of economists called for a reading of 58.
The setback in the industries that make up almost 90% of the economy coincides with the weakest reading in manufacturing since June 2009. While factories bear the brunt of a stronger dollar and sluggish sales overseas, service producers probably will be more insulated by steady household demand and improving real estate and labor markets.
“Domestic strength is there, but you’re likely to see some of the weakness from manufacturing and the oil sector filter through,” Millan Mulraine, deputy head of U.S. research and strategy at TD Securities, said before the report. “While growth remains quite buoyant, the buoyancy we’ve seen in the months before is now being realigned.”
Estimates in the Bloomberg survey of 68 economists ranged from 54.9 to 61. The measure averaged 57.5 this year through October, compared with 56.3 in all of 2014.
Twelve industries showed growth in November, led by real estate, the report showed.
The new-orders gauge fell to 57.5 in November from 62 the prior month. The measure of services employment decreased to 55 from 59.2, which was the second-highest since August 2005.
The business activity index, which parallels ISM’s factory production gauge, dropped to 58.2 last month from 63 in October. A measure of prices paid advanced to 50.3 from 49.1, indicating costs were barely rising,.
The ISM services survey covers an array of industries, including retailing, health care, agriculture and construction. It only leaves out manufacturing, which accounts for about 12% of the economy.
Steady job growth this year has lifted demand, with employers hiring at a 206,000 monthly pace on average through October compared with 260,000 in 2014 that was the strongest in 15 years. The economy probably added 200,000 jobs in November, according to the median in a Bloomberg survey ahead of the Dec. 4 report from the Labor Department.
The group’s manufacturing survey earlier this week showed factories unexpectedly contracted in November at the fastest pace since the last recession as bloated stockpiles prompted cutbacks in orders and production. The gauge dropped to 48.6, the lowest since June 2009, from 50.1 in October.
The data across industries provide Federal Reserve policymakers with more clues about underlying strength in domestic demand as they weigh when to raise the benchmark interest rate. The officials next meet Dec. 15-16 in Washington, when economists project they will increase the rate for the first time since 2006.
