U.S. service providers experienced a robust expansion of business activity in November, helped by the fastest rise in new work for one year. Greater workloads and resilient business confidence led to a further upturn in the pace of job creation from the three-and-a-half year low recorded in September. Meanwhile, input cost inflation eased slightly during November, which contributed to the slowest rise in average prices charged by service sector companies since April.
The seasonally adjusted final Markit U.S. Services Business Activity Index registered 54.6 in November, to remain above the 50.0 no-change value for the ninth consecutive month. Although the latest reading was fractionally lower than in October (54.8), the rate of growth remained stronger than at any time in the first half of 2016. Survey respondents noted that improved client confidence and a favourable domestic economic backdrop had helped to boost business activity in November.
Latest survey data signalled a continued rebound in new business growth from the four-month low recorded in September. Moreover, the rate of expansion accelerated to its fastest since November 2015. Anecdotal evidence suggested that the launch of new projects and generally improving demand patterns had boosted new orders in November, alongside competitive pricing strategies.
Payroll numbers increased again in November, with the rate of job creation reaching its strongest since July. However, the latest upturn in staffing levels was still weaker than the average recorded since the jobs recovery began in early-2010. A number of firms commented on efforts to boost capacity in line with long-term expansion plans and hopes of a sustained improvement in economic conditions. This in turn contributed to a reduction in backlogs of work for the first time in five months during November.
There were signs of a squeeze on operating margins across the service economy in November, with input cost inflation close to the 15-month peak seen in October. Survey respondents attributed this to higher food prices and efforts by suppliers to pass on increased raw material costs. However, prices charged by service sector firms rose only slightly in November.
Service providers remain upbeat about their growth prospects for the next 12 months. The latest reading was one of the strongest since late-2015, but down slightly from October’s recent peak. Survey respondents cited the end of the election cycle and improved economic conditions as driving positive sentiment in November.
At 54.9 in November, the seasonally adjusted final Markit U.S. Composite PMI™ Output Index was unchanged from October’s 11-month high and therefore signalled a further robust expansion of private sector business activity. Manufacturing production picked up at a sharp and accelerated pace in November (output index: 56.3), but this was offset by a fractionally slower expansion of service sector activity than in October.
Chris Williamson, Chief Business Economist at IHS Markit:
Looked at together, the two PMI surveys point to the pace of economic growth holding steady on October’s 11-month high, indicating that GDP is set to rise by 0.6% (2.5% annualized) in the fourth quarter. Both sectors are benefitting primarily from stronger domestic demand.
