PMI: U.S. Service Sector Growth Accelerates In November

by Ike Obudulu Last updated on April 3rd, 2019,

Growth in the U.S. service sector activity unexpectedly accelerated in the month of November, according to a report released by the Institute for Supply Management on Thursday.

The ISM said its non-manufacturing index crept up to 60.7 in November after pulling back to 60.3 in October, with a reading above 50 indicating service sector growth. Economists had expected the index to dip to 59.2.

“The non-manufacturing sector continued to reflect strong growth in November,” said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

“However, concerns persist about employment resources and the impact of tariffs,” he added. “Respondents remain positive about current business conditions and the direction of the economy.”

The unexpected uptick by the headline index was partly due to a notable acceleration in the pace of growth in business activity, as the business activity index jumped to 65.2 in November from 62.5 in October.

The new orders indeed also rose to 62.5 in November from 61.5 in October, indicating a faster rate of growth in new orders.

On the other hand, the employment index fell to 58.4 in November from 59.7 in October, suggesting a slowdown in the pace of job growth in the service sector.

The report also said the prices index surged up to 64.3 in November from 61.7 in October, pointing to a re-acceleration in the pace of price growth after a slowdown in the previous month.

The ISM released a separate report on Monday showing manufacturing activity in the U.S. unexpectedly grew at a faster rate in November.

The purchasing managers index climbed to 59.3 in November after falling to 57.7 in October, while economists had expected the index to edge down to 57.5.

A separate services purchasing-managers index from IHS Markit was at 54.7 in November, compared with 54.8 in the prior month.

The report, originally scheduled for Wednesday, was moved to Thursday because of the national day of mourning for former President George H.W. Bush.

Other economy news – U.S. Factory Orders Show Steep Drop In October

A report released by the Commerce Department on Thursday showed a steep drop in new orders for U.S. manufactured goods in the month of October.

The Commerce Department said factory orders tumbled by 2.1 percent in October after rising by a downwardly revised 0.2 percent in September.

Economists had expected factory orders to slump by 2.0 percent compared to the 0.7 percent increase originally reported for the previous month.

Durable goods orders led the way lower during the month, plunging by 4.3 percent amid a 12.0 percent nosedive in orders for transportation equipment.

Meanwhile, the report showed a continued increase in orders for non-durable goods, which rose by 0.3 percent in November.

The Commerce Department also said shipments of manufactured goods fell for the first time in sixteen months, edging down by 0.1 percent in October after climbing by 0.7 percent in September.

Inventories of manufactured goods increased for the twenty-fourth consecutive month, inching up by 0.1 percent in October after rising by 0.6 percent in September.

With inventories and shipments both showing only modest moves, the inventories-to-shipments ratio was unchanged from the previous month at 1.34.

Other economy news – U.S. Trade Deficit Swells To Widest In Ten Years In October

Reflecting a modest increase in the value of imports and a slight decrease in the value of exports, a report released by the Commerce Department on Thursday showed the U.S. trade deficit widened to a ten-year high in the month of October.

The Commerce Department said the trade deficit widened to $55.5 billion in October from a revised $54.6 billion in September.

Economists had expected the trade deficit to widen to $55.0 billion from the $54.0 billion originally reported for the previous month.

The trade deficit widened for the fifth consecutive month, reaching its highest level since hitting $60.2 billion in October of 2008.

The wider than expected trade deficit was partly due to the uptick in the value of imports, which crept up by 0.2 percent to $266.5 billion in October from $265.9 billion in September.

Notable increases in imports of pharmaceutical preparations, automotive vehicles and parts, and other goods were partly offset by a steep drop in imports of capital goods.

On the other hand, the Commerce Department said the value of exports edged down by 0.1 percent to $211.0 billion in October from $211.4 billion in September.

Exports of soybeans showed a continued decrease amid Chinese tariffs, moving lower along with exports of civilian aircraft and engines. Meanwhile, exports of industrial supplies and materials and other goods rose.

Andrew Hunter, U.S. Economist at Capital Economics, said the wider deficit in October suggests net trade will once again be a drag on GDP growth in the fourth quarter.

In addition to the continued drop in soybean exports, Hunter said the decrease in exports may also indicate that the U.S. dollar’s 8 percent appreciation this year is starting to take its toll.

“Even so, with consumption growth still strong, we still expect fourth quarter GDP growth to come in at between 2.5% and 3% annualized,” Hunter said.

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