The numbers: A barometer of U.S. business conditions at service-sector companies such as banks and restaurants rose to 56.5% in November, a strong showing that signals the economy is still expanding at a steady pace. Numbers over 50% are a sign the economy is growing, and figures above 55% are viewed as exceptional.
The closely followed ISM reports, produced by the Institute for Supply Management, are the first major indicators of each month and offer clues on how well the economy is performing.
“Overall business is stable,” a retail executive told ISM. “Employment is low and inflation is lower than last month. Supply-chain issues are stabilizing.”
Economists polled by The Wall Street Journal had expected the index to drop to 53.7% from 54.4% in October. Other measures of the economy have indicated that growth is slowing due to rising interest rates and high inflation.
The snapshot of the economy given by the service-sector index is more positive than a similar ISM survey of manufacturers, which showed deteriorating business conditions.
Key details:
- The production gauge jumped 9 points to 64.7%.
- The new-orders index fell 0.5 points to a still-strong 56%.
- The employment barometer rose 2.4 points to 51.5%, turning positive again, partly due to holiday-season hiring.
- The prices-paid index, a measure of inflation, fell 0.7 points to 70%. Prices are rising much more slowly than they were in the spring.
Big picture: The huge service segment of the economy has held up better than the industrial side. Americans have shifted spending to services such as travel and recreation and away from buying goods like new cars and computers.
Warning signs are evident, though. Companies have gotten more careful about hiring and investment, and consumers aren’t spending as much as they were earlier in the year.
Many economists also think the U.S. is headed for a recession in 2023 as rising interest rates take a big bite out of growth. The housing market, for instance, has suffered a major drop in sales and construction due to soaring interest rates.
Looking ahead: “Activity remains fairly resilient for now, but we believe that it’s only a matter of time before Fed interest-rate hikes and tighter financial conditions push the economy into a recession,” said Oren Klachkin, lead U.S. economist at Oxford Economics.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
fell sharply in Monday trades.