ISM: US November Service Sector Growth Pace Picks Up on Holiday Season, New Fiscal Year Demand

–ISM’s Nieves: Some Pullback Expected in Q1 of 2023 After Holiday Season
–ISM’s Nieves: High Inflation ‘Still Evident’ Despite Lower Gasoline Prices

–ISM’s Nieves: Supply Deliveries Improving; Port Congestion, Trucking Delays Eased 

By Max Sato

(MaceNews) – U.S. service sector growth picked up slightly in November after slowing in the previous two months, backed by holiday season demand and at the initial stage of the government’s new fiscal year that began in October, according to the latest survey by the Institute for Supply Management (ISM) released Monday.

The main index, which shows the directional change of economic activity, indicated the sector continued growing for the 30th straight month, staying above the key 50 line. It rose 2.1 percentage points to 56.5 from October, when it dipped 2.3 points to 54.4 from September’s 56.7. It was firmer than the median economist forecast for 53.5.

The index stayed well above the recent low of 41.5 hit in April 2020 and 40.1 in March 2009, the lowest since the inception of the Services PMI in 2008. But it also remains well below the record high of 68.4 hit in November 2021.

“Growth continues at a faster rate for the services sector, which has expanded for all but two of the last 154 months,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “The sector had an uptick in growth after pulling back in the previous two months. The rate of growth increased in November due to increases in business activity and employment.”

“Based on comments from Business Survey Committee respondents, increased capacity and shorter lead times have resulted in a continued improvement in supply chain and logistics performance,” he said. “A new fiscal period and the holiday season have contributed to stronger business activity and increased employment.”

Nieves told reporters that the uptick in November was “not so surprising” and that the recent performance of the services sector is “consistent” with his forecast that the main index will rise or fall slightly or move sideways.

The services index has been below its 12-month average (57.2 for the December 2021 to November 2022 period) since “extremely strong” performance in the fourth quarter of 2021, which was boosted by pent-up demand during the pandemic, he said, adding that the sector is “getting to a more normal situation.”

He expects the index to be solid in December and slip back in January. “Historically demand slows after the holiday season, so in the first quarter of 2023 will see some pullback,” he said.

Asked whether the services sector would have to slow down for sustainable U.S. economic growth under lower inflation, as the Federal Reserve is trying to achieve, Nieves replied, “In the high 50s and low 60s (in the ISM services index), I wouldn’t think it would be sustainable to keep operating at that high rate of growth.”

The ISM is in the process of collecting data for its latest semiannual economic forecast due on Dec. 13, in which respondents are expecting to see some pullback, according to the ISM. The latest projection released in May showed respondents expected the U.S. economy to continue expanding for the rest of 2022 but it didn’t provide forecasts for 2023.

The business activity index jumped 9.0 points to 64.7 in November after slumping 3.4 points to 55.7 in October from 59.1 percent in September. The new orders index dipped 0.5 point to 56.0 after falling 4.1 points to 56.5 in October from 60.6 the previous month.

A retailer told the ISM November survey: “Overall business is stable. Employment is low and inflation is lower than last month. Supply chain issues are stabilizing.”

“Business is doing well, almost back to pre-coronavirus pandemic volumes,” said a firm in the agriculture, forestry, fishing, and hunting category.

The supplier deliveries Index fell 2.4 points to 53.8 in November from rising 2.3 points to 56.2 in October from 53.9 in September. A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases. There are not so many containerships waiting off U.S. ports and there are some improvements in overland trucking, Nieves said.

“Still long lead times for service-related needs,” a company providing educational services said. “A slight downturn in fuel costs in this region, but we are still experiencing supply chain shortages and delays.”

The prices index fell a slight 0.7 point to 70.0 in November after rising rose 2.0 points to 70.7 in October from 68.7 in September, which was the first increase in six months. Th index is well below a record high of 84.6 hit in April this year.

Nieves noted that “high inflation is still evident” despite lower gasoline prices.

Services firms continue to struggle to replenish their stocks, as the inventories index contracted for the sixth consecutive month. It rose 0.7 point to 47.9 in November after gaining 3.1 points to 47.2 in October from September’s reading of 44.1. The inventory sentiment index stood at 44.2, down 2.2 points from October, when it fell 0.8 point from 47.2 the previous month. It contracted for the fourth month in a row.

The employment index rebounded 2.4 points to 51.5 in November after falling 3.9 points to 49.1 in October from 53.0 in September.

“Job openings are seemingly continuing to decrease, but with demand for top talent still high and availability still rather scarce, the opportunity for growth is still there,” a firm from the professional, scientific and technical services category said.

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