Service sector

U.S. service sector growth hits new highs in November

Growth in the service sector, where most Americans work, hit a record high in November, topping a record set the previous month.

The Institute for Supply Management reported Friday that its monthly survey of service industries rose 2.4 percentage points in November from October’s record high of 69.1%. Any reading above 50 indicates growth.

Part of the strength of the service sector comes from supply chain issues that make it harder to meet increased demand. These problems show up in the index in the form of longer lead times from suppliers and higher prices which are positives for the service sector.

The recent increase in COVID-19 cases and now the appearance of the new omicron variant could depress service sector activity in the coming months.

“We suspect this survey overstates the outlook for the service sector, especially as rising coronavirus infection rates in the Northwest and Midwest will weigh on high-contact service activity over the next year. ‘winter,” said Paul Ashworth, chief U.S. economist for Capital Economics.

November’s increase was led by a rise in the business activity index and a gain in the employment index. The new orders index remained at a high level of 69.7.

All 18 industries in the services sector recorded growth in November and since recording two months of contraction last year in April and May when the pandemic raged, the overall index has now risen for 18 consecutive months.

Anthony Nieves, head of the ISM services sector inquiry committee, said responses to the November report were gathered before reports started coming out about the new omicron variant. He said that while the new variant might impact service industry activity, it will depend on the extent of the new variant and its increase in infections.

Responses from companies in the service sector showed that supply chain delays and difficulty in finding workers were having a widespread impact.

A foodservice survey respondent highlighted “labour shortages, transportation delays and supply constraints” as significant issues.

Oren Klachen, chief US economist at Oxford Economics, predicted that “substantial supply-side restrictions will continue to limit expansion even if omicron does not prove to be a significant threat.”