Growth in US service sector reaches new heights in November

Business News

FILE – Patrons are assisted while dining along a sidewalk on Franklin Street in Chapel Hill, N.C., Friday, April 16, 2021. Growth in the services sector, where most Americans work, hit an all-time high in November, surpassing the previous record set in October. (AP Photo/Gerry Broome, File)

WASHINGTON (AP) — Growth in the services sector, where most Americans work, hit an all-time high in November, overtaking a record that was set the previous month.

The Institute for Supply Management reported Friday that its monthly survey of service industries increased by 2.4 percentage points in November from the October record to a reading of 69.1 percent. Any reading above 50 indicates growth.

The service sector data is being released against the backdrop of an employment landscape in which hiring appeared to slow in November, but the unemployment rate tumbled from 4.6% to 4.2%. That is a historically low jobless rate though still above the pre-pandemic level of 3.5%.

Some of the strength in the services sector is coming from supply chain troubles that are making it harder to meet increased demand. Those troubles are showing up in the index as longer supplier delivery times and rising prices which register as strengths for the services sector.

The recent uptick in COVID-19 cases and now the appearance of the new omicron variant could depress service sector activity in coming months.

“We suspect this survey is overstating the outlook for the services sector, particularly as rising coronavirus infection rates in the Northwest and Midwest will weight on high-contact services activity over the winter,” said Paul Ashworth, chief U.S. economist for Capital Economics.

The increase in November was led by a rise in the business activity index and a gain in the employment index. The new orders index remained at an elevated reading of 69.7.

All 18 service sector industries reported growth in November and since recording two months of contraction last year in April and May when the pandemic was raging, the overall index has now grown for 18 consecutive months.

Anthony Nieves, head of the ISM services sector survey committee, said the responses for the November report were gathered before reports started coming out about the new omicron variant. He said while the new variant could impact service sector activity it will depend on how widespread the new variant is and how much it increases infections.

The responses from service sector businesses showed that the supply chain delays and difficulty finding workers were having a widespread impact.

One survey respondent in food services pointed to “labor shortages, transportation delays and supply constraints” as big issues.

Oren Klachen, lead U.S. economist at Oxford Economics, predicted that “substantial supply side restraints will continue to cap the expansion even if omicron doesn’t prove to be a significant threat.”

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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