The US services sector isn't doing as well as we thought

This morning, we got two readings on the US services sector during November.

And both of them showed that the sector is not doing as well as expected.

The Institute of Supply Management’s non-manufacturing index was 55.9, missing expectations. It had been forecast at 58, down from 59.1.

The survey showed that the growth rate across most indexes, including employment and new orders, slowed down.

“We think this is temporary, given the
strength of the labour market and consumers’ cash flows, but the ISM index nonetheless was vulnerable, and the consensus failed to reflect the risk,” wrote Pantheon Macroeconomics’ Ian Shepherdson to clients.

The much-larger services sector has been far more resilient than manufacturing this year. Last month, the ISM manufacturing index slipped into contractionary territory, and to the lowest level since June 2009.

Markit’s services Purchasing Manager’s Index (PMI) came in at 56.1, also missing estimates.

It had been forecast at 56.5, unchanged from the prior month, according to Bloomberg.

But despite the headline disappointment, compared to October, the report indicated that employment, new business, and output all rose at a faster pace in November.

In the prior report, Markit chief economist Chris Williamson said that the November survey report was critical because it would give us a reliable idea of business conditions in the fourth quarter.

And in Thursday’s release, Williamson said the improvement points to strong economic performance into the end of the year.

“Growth is being fuelled by rising domestic demand, which propelled growth in the vast service economy higher and more than offset an export-led weakening of manufacturing growth,” Williamson said.

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