There were two important reports on the economy released this morning. First, the purchasing managers' index (PMI) from IHS Markit for the U.S. services sector, which accounts for a much larger share of the overall economy than manufacturing, ended November at 54.5. That is down from 55.3 in October and slightly worse than expected. However, any reading above 50 implies overall activity expansion, and the November print is still well above the pre-election level. Further, the pace of new orders growth rebounded last month, which surveyed managers attributed to more favorable demand conditions and the acquisition of new clients. Job creation also accelerated in November even as capacity pressures softened for the fourth successive month. On the inflation front, margin strain intensified in November, but many service providers reported that they were able to pass higher input costs onto clients.
Somewhat less encouraging was the Institute for Supply Management’s (ISM’s) non-manufacturing index, which fell to 57.4 in November. That is a larger pullback than anticipated following the 12-year high hit in October and the lowest headline reading since August. Measures of production, new orders, and employment all deteriorated in November, but these gauges remain well above 50 and therefore continue to signal net growth, albeit at a slower rate last month. Comments from surveyed managers were somewhat mixed in November. IHS Markit’s Chris Williamson added that “optimism about the year ahead deteriorated as companies grew increasingly cautious about the outlook for 2018, suggesting risk aversion may start to rise, which could hit hiring and investment. However, for now, businesses generally remain in expansion mode and the upturn shows few signs of losing momentum to any significant extent.”
Sources: Econoday, IHS Markit, ISMPost author: Charles Couch