US services readings mixed as eyes turn to Fed meeting next week

(Alliance News) - Readings of the US service sector painted a mixed picture on Monday, with S&P Global's suggesting a month of decline, but the Institute for Supply Management's tracker stregthening the case for a hawkish Federal Reserve.

The seasonally adjusted S&P Global US Services PMI Business Activity Index registered 46.2 in November, compared to 47.8 in October. At below the 50.0 no-change mark, the score shows the sector remains in contraction.

The fall in business activity was largely linked to lower new orders and subdued client demand. The rate of contraction was the fastest since August and among the sharpest on record, according to S&P Global.

However, ISM's reading picked up. ISM's services PMI rose to 56.5 points last month, from 54.4 in October. November's reading came in ahead of consensus of 53.1 points.

It was the 30th month of growth for the US service sector, according to ISM.

"The jump in the headline index comes as a bit of a surprise; the regional survey data were mixed and the November S&P Global services headline index fell. Most of the increase was in the current business activity sub-index, which jumped by nine points, but new orders fell for the third straight month, to the lowest level since July. The bigger picture here is that the services sector is holding up better than manufacturing, which is more sensitive to financial conditions," analysts at Pantheon Macroeconomics commented.

"Services firms have benefitted from a shift in spending away from goods, financed in part by people choosing to run down savings accumulated during Covid. That should keep service sector growth in the black for now, but we’re less convinced that people will remain willing to draw down their remaining stock of excess savings next year, as the labour market weakens."

Analysts at Oxford Economics, meanwhile, said the data was resilient but there could be weakness to come.

"Services aren't under pressure yet, but that doesn't mean the sector is immune from challenging economic conditions," the analysts said.

"Activity remains fairly resilient for now, but we believe that it's only a matter a time before Fed interest rate hikes and tighter financial conditions push the economy into a recession."

By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

Copyright 2022 Alliance News Ltd. All Rights Reserved.