WASHINGTON: Growth in the dominant US services sector picked up unexpectedly in November, survey data showed in Monday (Dec 5), as business activity strengthened with a boost from the year-end holiday season.
The Institute for Supply Management (ISM) services index rose to 56.5% last month, well above the 50% threshold indicating growth and defying expectations that activity would ease as consumers draw down on their savings.
The key sector accounts for two-thirds of the world’s largest economy and has held up since the height of the Covid-19 pandemic, despite a recent aggressive campaign by the central bank to cool demand and bring down surging inflation.
“A new fiscal period and the holiday season have contributed to stronger business activity and increased employment,” said ISM survey chair Anthony Nieves in a statement.
“Increased capacity and shorter lead times have resulted in a continued improvement in supply chain and logistics performance,” he added.
The latest uptick comes after a pullback in the previous two months.
The business activity index surged nine percentage points from October, according to ISM data released on Monday, while new orders edged down slightly.
There was some improvement in supplier deliveries, while businesses in the services industry continued struggling to replenish their stocks, ISM said.
The US services sector has expanded for all but two of the last 154 months – contracting in April and May 2020 when the US grappled with the start of the pandemic.
“Business is doing well, almost back to pre-coronavirus pandemic volumes,” said a survey respondent in the agriculture industry.
Other respondents noted that demand and new business requests remain robust.
But analysts expect activity to slow eventually.
“We believe that it’s only a matter a time before Fed interest rate hikes and tighter financial conditions push the economy into a recession,” said Oren Klachkin of Oxford Economics.
“Services aren’t under pressure yet, but that doesn’t mean the sector is immune from challenging economic conditions,“” he added.
Activity in the sector has held up despite monetary tightening as people chose to finance rising spending by tapping their savings accumulated during the pandemic, said Ian Shepherdson and Kieran Clancy of Pantheon Macroeconomics in a recent analysis.
“Our best guess is that people will become less willing to run down savings ... as the labour market weakens,” they added. – AFP
