U.S. service sector activity gauge hits record high in November – ISM survey

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FILE PHOTO: Proof of vaccination required upon entry to restaurants in Philadelphia

WASHINGTON – A measure of U.S. services industry activity unexpectedly rose in November, hitting a fresh record high as businesses boosted hiring, but there was little sign that supply constraints were easing and prices remained high.

The Institute for Supply Management said on Friday its non-manufacturing activity index increased to 69.1 last month, the highest reading since the series started in 1997, from 66.7 in October. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity.

Economists polled by Reuters had forecast the index falling to 65. The survey added to data on consumer spending, the labor market and manufacturing in painting a strong picture of the economy. The Omicron variant of COVID-19, however, poses a risk to the outlook.

The ISM’s measure of services industry employment increased to a seven-month high of 56.5 from 51.6 in October. That offered hope that a pandemic-related labor crunch, which has hampered faster job growth, could be starting to ease. There were 10.4 million job openings at the end of September.

With employment levels rising, services industries made progress in reducing the backlog of unfinished work last month.

Overall, supply constraints remained binding. The survey’s measure of supplier deliveries was unchanged at a high 75.6. A reading above 50% indicates slower deliveries.

Longer delivery times accounted for some of the surprise increase in the services index. They are normally associated with a strong economy and increased customer demand, which would be a positive contribution to the ISM non-manufacturing index.

In this instance, however, slower supplier deliveries also indicate relentless pandemic-related shortages.

The survey’s measure of prices paid by services industries ticked down to a still-high 82.3 from 82.9 in October. Federal Reserve Chair Jerome Powell told lawmakers on Tuesday that “the risk of higher inflation has increased.”

A measure of new orders received by services businesses held at a record 69.7 last month.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)