Wednesday, January 19, 2022

US Service Sector Growth Reaches New Highs In November

WASHINGTON (AP) – Growth in the services sector, where the majority of Americans work, hit a record high in November, breaking the record set in the previous month.

The Institute for Supply Management said Friday that its monthly service sector survey increased 2.4 percentage points in November from an October record to 69.1 percent. Any reading above 50 indicates growth.

The data for the service sector comes against the backdrop of the employment situation, in which the number of hires fell in November and the unemployment rate fell from 4.6% to 4.2%. This is a historically low unemployment rate, although it still exceeds the pre-pandemic level of 3.5%.

Part of the strength of the service sector lies in supply chain problems that make it difficult to meet increased demand. These problems are reflected in the index in the form of longer supplier lead times and higher prices, reflecting the strengths of the services sector.

The recent surge in COVID-19 cases, and now the emergence of a new variant of omicron, could reduce activity in the service sector in the coming months.

“We suspect this study is exaggerating the outlook for the services sector, especially as the rise in coronavirus infections in the Northwest and Midwest will impact winter service activity by highly skilled services,” said Paul Ashworth, chief economist at Capital Economics in the United States.

The growth in November was driven by a rise in the PMI and an increase in the employment index. The new orders index remained at an increased level of 69.7.

All 18 service industries reported gains in November, and since a two-month contraction was recorded in April and May last year as the pandemic raged, the overall index has now grown for 18 straight months.

Anthony Nieves, head of the ISM’s services sector review committee, said responses to the November report were collected before reports began to surface on a new version of the omicron. He said that while the new option may affect service sector activities, it will depend on how widespread the new option is and how much it increases infections.

Service sector responses indicated that supply chain delays and difficulty finding workers had a widespread impact.

One foodservice respondent cited “labor shortages, transportation delays and supply constraints” as serious problems.

Oren Clachen, a leading US economist at Oxford Economics, predicted that “substantial supply-side constraints will continue to hold back expansion, even if Oomicron does not prove to be a major threat.”

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