The US services sector expanded at a slower pace last month, ISM said Thursday.
The non-manufacturing gauge came in 55.9 for November, essentially matching consensus, which was looking for 55.8. The range was 54 to 57.6.
While 55.9 is still a solid read, it’s the lowest since May and comes as the US struggles with a rapidly worsening public health crisis that’s prompted new restrictions on services sector businesses and even compelled some local officials to institute stay-at-home orders.
To be sure, the situation could be worse. The breakdown on the November report still appears generally positive.
Business activity printed 58, down from 61.2 in October, while new orders came in at 57.2 from the prior month’s 58.8. Encouragingly, the employment index ticked higher to 51.5 from 50.1.
While Thursday’s data will perhaps ameliorate some concerns that the US services sector has already buckled under the weight of new lockdowns and virus restrictions, the highest read on the prices paid gauge since September 2012 will add fuel to the inflation narrative.
You might recall that the initial read on IHS Markit’s PMIs for November reflected similar pressures (see linked post below). The final read on their US services sector PMI (also out Thursday) underscored the point. “Input prices rose at the quickest pace since data collection began in October 2009, while firms also raised their output charges at the fastest rate for more than a decade in an effort to pass on steeper cost burdens to customers,” the color that accompanied the release said.
The already blistering flash print on the headline was revised higher to 58.4, indicating the most rapid expansion in nearly a half-dozen years.
You can make of all this what you will. With activity still robust, it’s far too early to roll out any dour predictions.
That said, overall activity on ISM’s gauge is decelerating and inflation pressures are building. Take that for what it’s worth.
‘Quite Literally At A Price’: Inflation Comes Roaring To Life In US PMIs
I’ve observed that one inflation driver is that small service businesses are pushing up prices in order to stay afloat. I found that a haircut at my usual place suddenly went from $14 to $21 (yeah, I’m cheap). Of course, you can’t begrudge them the increase, and I suspect it will stick post-Covid as well. But a transitory round of inflationary gasps by small businesses to make it to 2021 won’t hurt. I’ll keep whistling past the equity markets for now, as the umber hulks of Fed liquidity move around, seeking to break out of there.