Growth in US services firms accelerates in November, points to stronger growth

WASHINGTON – U.S. services firms expanded at a faster pace in November, a signal that overall economic growth should remain robust.

The Institute for Supply Management said Wednesday that its services index rose to 59.3 last month, up from 57.1 in October. The first gain in two months pulls the index close to the eight-year high of 59.6 reached in August. Any reading over 50 indicates expansion.

The index has consistently been pointing to stronger economic growth and hiring this year. Employers have added a solid average of 228,500 jobs a month so far this year, while gross domestic product has increased at an annual rate of more than 3.5 per cent in four of the past five quarters.

Jim O’Sullivan, chief U.S. economist at High Frequency Economics, said the November reading is “more evidence that the recovery has moved into a higher gear in recent months.”

The ISM is a trade group of purchasing managers. Its survey of services firms covers businesses that employ 90 per cent of the American workforce, including retail, construction, health care and financial services firms.

The new orders component of the index climbed to 61.4, which was 2.3 points higher than the October reading of 59.1. But the employment component slid 2.9 percentage points to 56.7 in November.

Despite the decrease in the hiring component, the level still suggests “a fairly decent rate of growth” with hiring, said Tony Nieves, chair of the ISM’s non-manufacturing survey committee.

The export component also improved, despite the global slowdown in Europe and China and the recession in Japan.

All of that bodes well for the economy.

The November jobs report being released Friday is expected to show gains of 225,000 last month, according to FactSet.

GDP rose at a 4.6 per cent pace in the April-June quarter of this year and a 3.9 per cent pace in the July-September quarter, after being mired in recent years at a sluggish 2 per cent level.

The job growth and plunging unemployment rate, currently at 5.8 per cent, appear to have bolstered the overall economy, as well as services firms. Each additional job means there are more Americans with paychecks and incomes to spend at shopping malls, supermarkets, restaurants and online retailers.

The index’s survey found that 14 industries grew last month, led by agriculture, fishing, retail and construction. Three industries said their business activity decreased: arts, entertainment and recreation, and utilities and education.

Still, some industries expressed concern about due to recent shifts in the cost of food and oil.

Higher food costs are potentially limiting profits for restaurants and hotels. The prices of beef, produce and turkey “remain high,” noted one food services company.

Meanwhile, plunging oil prices — currently less than $70 a barrel— are also causing natural gas prices to fall, a mining firm said in the survey.