US service sector shows initial signs of cooling after strong growth

Activity in the U.S. service sector slowed in November but remains at a level indicative of solid economic growth in the fourth quarter. The latest report from the Institute for Supply Management (ISM) shows that the Purchasing Managers' Index (PMI) for the non-manufacturing sector fell to 52.1. By comparison, the index stood at an impressive 56.0 in October, the highest since August 2022. Economists had expected a decline to 55.5. A PMI reading above 50 signals growth in the service sector, which accounts for more than two-thirds of the U.S. economy. The ISM's overall assessment suggests that PMI values above 49 over extended periods indicate expansion of the overall economy. The economic momentum from the third quarter seems largely intact. Consumers continue to be willing to spend, and construction spending has also increased. However, business equipment investments may have lost momentum at the beginning of the fourth quarter. The Federal Reserve Bank of Atlanta currently forecasts an annualized GDP growth of 3.2% for this quarter. The economy grew at a rate of 2.8% from July to September. The ISM's sub-index for new orders fell from 57.4 in October to 53.7. The price index remained minimally unchanged at 58.2. Price increases in services, including transportation, financial services, and insurance, hinder progress in reducing inflation to the Federal Reserve's target of 2%. The employment index in the service sector also slightly fell to 51.5, after it was at 53.0 in October. However, this metric has not proven to be a reliable indicator of official employment figures. Employment numbers were expected to rise again in November. After disruptions from hurricanes Helene and Milton, as well as strikes at Boeing and another aerospace company, rebuilding has begun, laying the groundwork for strong employment growth last month. Experts estimate that around 200,000 new jobs were created in November, following the creation of only 12,000 new positions in October, the lowest increase since December 2020.