Report On Business® Roundup: November Services PMI®
The Services ISM® Report On Business® revealed that 14 of 18 industries indicated overall growth in November, with 14 reporting increased business activity and 13 higher new order levels — results in line with the previous month, which featured a robust composite PMI® of 56 percent.
But which industries (and their share of services sector gross domestic product) are in expansion or contraction can tip the overall scales. That dynamic — as well as delayed interest-rate cut impact and uncertainty about tariffs and other policy from the incoming Donald Trump administration — helped lead to a combined 15.6-percentage point decrease in the four subindexes that directly feed into the Services PMI®.
The headline reading of 52.1 percent reflected the mixed bag of sentiment, Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, told a conference call of reporters on Wednesday.
ISM services index slowed to a 3-month low but is still in expansion territory across the board. Looks like service sector growth is moderating. pic.twitter.com/OlBPDq85pP
— Kathy Jones (@KathyJones) December 4, 2024
“There were positive and negative comments related to seasonality, with Retail Trade and Wholesale Trade trending positive,” Miller said, “which is a good sign for consumer sentiment and what you want to see going into the holiday season.” He added, “There was general concern over input costs and potential tariffs.”
The Business Activity Index fell 3.5 percentage points to 53.7 percent, the New Orders Index was down 3.7 points to 53.7 percent and the Employment Index decreased 1.5 points to 51.5 percent.
Miller said that 16 percent of sector GDP moved from growth to contraction or neutral territory in November. A big part of that shift was Real Estate, Rental & Leasing (RER&L) — the largest services industry — which reported an overall contraction, as well as decreases in business activity, new orders and inventories. That likely pulled down the entire sector.
The U.S. Federal Reserve (Fed) cut interest rates in September and November, and Fed governor Christopher Waller has hinted that another reduction this month is likely. Such industries as RER&L, Utilities and Construction, Miller said, “have not yet seen a positive impact from the previous rate cuts, which have not flowed into their business activity. I think that’s being reflected in 30-year mortgage rates staying well above 6 percent.” (The mortgage-rate pot could be further stirred by the next president.)
A comment from a panelist in Construction summed up the uncertainty: “(I)nterest rate cuts have not had the desired effect on mortgage rates yet. With election results mostly determined, expansion of residential construction is anticipated, but the unknown effect of tariffs clouds the future.”
Miller said there were no panelist comments on supply chain restructuring or alternate sourcing, in part because such services industries as Accommodation & Food Services and Construction began reducing their dependence on China years ago. However, Trump’s recent tariff threats on products from Canada and Mexico are an X-factor.
“There could be reciprocal actions that might limit availability of products,” he said. “That might be more of a concern than direct cost of goods.”
Another drag on the PMI® was the Supplier Deliveries Index reading of 49.5 percent, in contraction (or “faster”) territory. Faster lead times in November were expected after resolution of disruptions from Hurricanes Helene and Milton and the East Coast ports strike, and a 6.9-percentage point decrease in the Suppler Deliveries Index is good for companies but not so much for the composite index.
As an inversed index, a Supplier Deliveries reading above 50 percent indicates slower lead times, which is typical as demand increases and the economy improves. Miller cited the swift restart of production at a hurricane-damaged IV solutions plant in North Carolina as a benefit to delivery performance, though many hospitals are still dealing with shortages.
Interesting clash between the ISM PMIs: Manufacturing improved, while Services weakened. Faster Supplier Deliveries, which actually indicates a cooling demand proxy, was a shared link between both indexes. pic.twitter.com/97wjhdYz0l
— Liz Young Thomas (@LizThomasStrat) December 4, 2024
The Report On Business® roundup:
Bloomberg: U.S. Services Activity Expands at Slowest Pace in Three Months. “Combined with data earlier this week showing an eighth straight month of contraction in manufacturing, the services survey suggests moderating economic growth in the final stretch of 2024. … The easing of business activity, along with a fourth month of declining backlog orders and a slide in export demand, led to a tempering of employment growth at service providers.”
Mace News: U.S. Services Sector Expands for Fifth Straight Month in November. “Pre-holiday seasonal factors worked positively for the retail and transport industries, which indicates ‘overall good signs for consumer sentiment,’ Miller told reporters, adding that utilities saw both positive and negative effects of seasonal factors.”
MarketWatch: Economy Cools off After Election, ISM Finds. Businesses Anxious About Trump’s Economic Plans. “A tight labor market has discouraged firms from laying off workers, making Americans feel secure enough in their jobs to allow them to keep spending. That’s helped to sustain a four-year-old expansion. The outlook for the economy in early 2025 is steady growth, but businesses anxiously await the details of President-elect Trump’s policies.”
November data confirms weakness in the service sector, as both PMI and ISM reports disappoint. Investors are ignoring the weak data, expecting it to change under the #Trump administration. However, higher #inflation is already baked in, pushing bond yields up and real wages down.
— Peter Schiff (@PeterSchiff) December 4, 2024
Reuters: U.S. Services Sector Activity Takes Breather in November. “The economy appears to have retained most of its momentum from the third quarter, with consumer spending rising at a brisk clip in October. Construction spending also picked up, though business spending on equipment probably softened early in the fourth quarter.”
The Wall Street Journal: U.S. Services Sector Slows as Firms Gauge Trump Policies. “(M)ost sectors reported business-activity growth, reinforcing the view of recent months that the services sector has returned to sustained growth, despite some seasonal impacts, (Miller) said. … Federal Reserve rate cuts, including the last one in November, haven’t had the desired effect on mortgage rates, said one respondent to the survey from the construction sector.”
In case you missed Monday’s Report On Business® Roundup on the release of the November Manufacturing PMI®, you can read it here. The Hospital PMI® will be released on Friday. Also, the ISM Supply Chain Planning Forecast (formerly the Semiannual Economic Forecast) for the manufacturing and services sectors will be released on December 16.
For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.
(Photo credit: Getty Images/Ryan J. Lane)