A month ago, after the Services ISM® Report On Business® data suggested a slowdown, this space suggested that the U.S. economy could be on the verge of the “soft landing” — a lowering of inflation while avoiding a recession — desired by the U.S. Federal Reserve (Fed).
On Tuesday, after the release of the Services PMI® for November that beat analysts’ expectations at 52.7 percent, Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® Services Business Survey Committee, was asked: Is it time for the Fed, after 11 interest-rate hikes since March 2022, to think about reversing course?
“Definitely,” Nieves told Bloomberg TV. “Our (Business Survey Committee) respondents are indicating that. They’re saying that capital investment has been impacted by high interest rates. … We’re not seeing the new housing starts that we’ve seen in the past, and Real Estate, Rental & Leasing is the largest (industry) contributor to GDP (gross domestic product) in this sector and the overall economy.”
While investors are clamoring for rate cuts, Fed chair Jerome Powell and other policymakers have made no promises. The ISM® Report On Business® numbers, from Services and Manufacturing, will influence the Fed’s decision-making in 2024. Toward that end, the Prices Index reading of 58.3 percent in November was a 0.3-percentage point decrease compared to the previous month.
The Employment Index (50.7 percent) was also a focus, amid the federal jobs report looming on Friday and a Job Openings and Labor Turnover Survey (JOLTS) report on Tuesday that revealed 8.7 million available jobs in the U.S. in October, the lowest since March 2021. ISM’s index reading was a 0.5 percentage-point gain month over month, but Nieves told a conference call of reporters that labor success continues to vary by industry.
“It’s not getting worse overall, but it seems to keep moving sideways,” he said. “Some industries are struggling to backfill positions, typically with customer facing roles. Construction is another industry having difficulty. Still others are looking to control that variable expense, with business levels not as high to withstand carrying a large roster of employees. So, it remains a mixed bag.”
Moderate growth for the US services sector in November offers a new clue in favor of the soft landing forecast. ISM Services Index edge up to 52.7 last month, comfortably above the neutral 50 mark: pic.twitter.com/YZnSvBGciM— James Picerno (@jpicerno) December 5, 2023
The primary drivers of the Services PMI® increase were the Business Activity Index, which improved 1 percentage point to 55.1 percent, and the New Orders Index, which equaled its October reading at 55.5 percent. But even that robust growth rate of current and future business couldn’t keep up with inventories.
After being in contraction territory in October, the Inventories Index registered 55.4 percent, up 5.9 percentage points as companies stocked up for the holidays, while health-care facilities acquired personal protective equipment (PPE) and other supplies for flu season.
One survey respondent lamented sluggish demand, writing, “We have more standing inventory, as capacity has increased but sales have not.” (The Inventories Index directly factors into the Manufacturing PMI® but not the Services PMI®, as about half of surveyed companies in the sector do not have inventories or do not measure them.)
However, the Supplier Deliveries (49.6 percent) and Backlog of Orders (49.1 percent) indexes suggest that services supply chains are generally operating smoothly, and Nieves said the sector looks to be on better footing than a year ago, when the PMI® unexpectedly went into contraction in December 2022.
“Maybe the build up for the holiday season won’t be as robust as we’ve seen in the past, but it’s definitely better than what happened last December,” Nieves said. “And since then, there has been 11 months of growth. Even though the PMI® has mostly been in the lower 50s, it’s been very consistent, equitable growth for the services sector.”
#GDP looks Backwards #ISM looks forward— Jeremy Fielder (@Jfielder_strat) December 5, 2023
No signs of #recession here, were' in the middle of a slowdown
Leading indicators (ISM_PMI) says..
- services growth is expanding
- manufacturing growth is bottoming. pic.twitter.com/TiAU2zunMM
The Report On Business® roundup:
Bloomberg: U.S. Services Sector Gauge Picks Up on Improved Business Activity. “While consumer spending — the backbone of the U.S. economy — has continuously surprised economists, in large part due to Americans’ incessant demand for services, forecasters don’t expect that level of strength to last much longer as employers scale back hiring and wage gains recede.”
CNBC: October JOLTS Data Misses Expectations in Weakest Read Since March 2021. “Let’s look toward November ISM Services index: 52.3 (percent) expected, and 52.7 percent is the best since September,” analyst Rick Santelli said. He added, “On the Employment Index, 50.7 percent is a big miss; however, it’s still the best number since September. … Of course, we’ll look to tomorrow’s ADP (private payrolls report) and Friday’s big (federal) jobs report to see if some of these above-50 expansionary services sector numbers will hold water.”
Investor’s Business Daily: 10-Year Treasury Yield Sinks As Job Openings Dive; Nasdaq Gains. “The (Employment Index) suggests that Friday’s (federal) jobs report may show a modest pace of hiring last month. (Last week), the ISM Manufacturing survey index showed the employment gauge falling one point to 45.8 percent, consistent with factory job losses. … Economists expect the employment report to show a net gain of 180,000 jobs, including 150,000 in the private sector. The unemployment rate is seen holding at 3.9 percent as average hourly wage growth ticks down to 4 percent.”
Mace News: Services Sector Expands for 11th Straight Month in November at Start of Holiday Season; Employment Grows Slightly. Of the four subindexes that directly factor into the Services PMI®, growth in business activity picked up modestly after slowing sharply in the previous month, new orders grew at the same pace as in October, employment conditions improved slightly, and supply deliveries were faster for the second straight month due to lower backlog orders and improved supply chains.”
TREASURIES EXTEND GAINS AFTER JOLTS, ISM SERVICES READINGS— Ozan Korman Tarman (@ozanktarman) December 5, 2023
MarketWatch: U.S. Services Sector Picks Up a Bit in November. “Economists polled by The Wall Street Journal had expected the index to rise to 52.4 percent. The buildup for the holiday season is not as robust as sometimes in the past but better than last year, said Anthony Nieves, head of the ISM services survey committee.”
Reuters: U.S. Services Sector Picks Up in November. “While the economy continued to flourish over the summer, economists expect demand to weaken this quarter, particularly for services, as consumers shift more of their spending back to goods. That would be welcomed by the U.S. central bank in its battle to bring inflation back to its 2-percent target rate given the stickiness of service sector inflation. There were encouraging (Services PMI® subindex readings) for policymakers.”
In case you missed Friday’s Report On Business® Roundup on the release of the November Manufacturing PMI®, you can read it here. The Hospital PMI® will be released on Thursday. Also, the Semiannual Economic Forecast for the manufacturing and services sectors will be released on December 15. For the most up-to-date content on the three indexes under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.