Service Industries in U.S. Expand at a More Moderate Pace

(Bloomberg) -- U.S. service industries expanded at a more moderate, yet healthy pace in November, tempered by softer growth in orders and business activity that remain constrained by the coronavirus.

The Institute for Supply Management’s services index fell to 55.9 during the month from 56.6 in October, according to data released on Thursday. Readings above 50 indicate expansion, and the November figure was in line with the 55.8 median estimate in a Bloomberg survey of economists.

Consecutive monthly declines in the gauge underscore the pandemic-related challenges faced by service industries that include leisure and hospitality, travel, dining and retail. While still robust, odds of an acceleration of growth at service providers are diminished by a resurgence of Covid-19 and the onset of cooler temperatures.

“Respondents’ comments are mixed about business conditions and the economy,” Anthony Nieves, chair of the ISM’s Business Survey Committee, said in a statement. “Most companies are cautious as they navigate operations amid the pandemic and the aftermath of the U.S. presidential election.”

At the same time, sectors such as information and finance have remained strong throughout the pandemic. A consumer shift to online purchases also indicates retailers and transportation companies will continue expanding during the holiday-shopping season.

Fourteen service industries reported growth in November, led by transportation and warehousing. Health care, food services, construction and retail also expanded.

The ISM’s index of new orders at service providers eased 1.6 points to 57.2. The measure of service-related business activity, which parallels the ISM’s factory production index, fell to 58 from 61.2 a month earlier.

The group’s measure of services employment increased 1.4 points to 51.5, marking the third straight month in which respondents indicated payrolls gains. The government’s monthly jobs report on Friday is projected to show employment rose 475,000 in November, indicating the economy was still adding workers but at a slower pace.

ISM’s gauge of prices paid by service providers rose to an eight-year high of 66.1, indicating accelerating costs for materials and services, partially due to shortages of personal protective equipment.

Meanwhile, a measure of inventory sentiment dropped to 49.9 from 51.1, the second-lowest in records back to 1997 and indicating more service providers see their stockpiles as being too low.

A separate ISM report Tuesday showed factory activity also cooled in November but remained robust. Difficulties of hiring workers and temporary shutdowns for sanitation will likely limit manufacturing growth potential, the ISM said.

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