Service Industries Expand at Second-Fastest Pace in Nine Years
Service industries in the U.S. expanded in November at the second-fastest pace in more than nine years, a sign the world’s largest economy is powering past a global slowdown.
The Institute for Supply Management’s non-manufacturing index rose to 59.3, the second-highest level since August 2005, from 57.1 in October, the Tempe, Arizona-based group said Dec. 3. A reading greater than 50 shows expansion. The figure exceeded the highest projection in a Bloomberg News survey of 78 economists.
The cheapest gasoline in four years and lowest unemployment since 2008 are giving American consumers the wherewithal to spend, helping generate greater optimism among service providers ahead of the year-end holidays. Wal-Mart Stores Inc. said it had a record number of orders through its website two days ago as shoppers took advantage of discounted merchandise.
“The services economy is gearing up for the holiday-shopping season,” Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. “Consumers are looking good, and the drop in gasoline is saving them millions and millions of dollars, right at an important time.”
American service providers are faring better than some of their competitors abroad. Growth at euro-area services companies deteriorated in November to the lowest level this year, according to figures from Markit Economics in London.
The median forecast of economists in the Bloomberg survey for the ISM report was 57.5, with estimates ranging from 54.4 to 59.1. The non-manufacturing index has averaged 56.3 this year, compared with 54.7 in all of 2013. November’s reading was just shy of the nine-year high of 59.6 reached in August.
The ISM services survey covers an array of industries including utilities, retailing, health care and finance that make up almost 90 % of the economy. It also factors in construction and agriculture.
Car dealers are among service providers enjoying stronger demand. Motor vehicles sold in November at a 17.1 million annualized pace, the second-highest level in eight years, according to figures Dec. 2 from Ward’s Automotive Group.
The new orders gauge for service companies increased to 61.4 in November from 59.1 the prior month. The business activity index, which parallels the ISM’s factory production gauge, rose to 64.4 from 60 in October.
The measure of services employment decreased to 56.7 from a nine-year high of 59.6, while a measure of prices paid rose to 54.4 from 52.1.
Earlier this week, the ISM’s manufacturing index held near the strongest pace in three years. The figure was little changed at 58.7, the second-highest level since April 2011, compared with 59 in October. The factory orders index climbed and its average over the past four months is the highest in a decade.
Persistent job growth and rising consumer confidence will probably provide support for U.S. growth as retailers compete for customers in their most important sales period of the year. Merchants such as Wal-Mart are extending discounts to lure those whose wages have been slow to pick up with the pace of hiring.
Wal-Mart, which is among those spreading out its promotions this holiday-shopping season, said Dec. 2 that customers viewed more than 1.5 billion pages on Walmart.com in the five days through Dec. 1, also known as Cyber Monday. The Bentonville, Arkansas-based retailer didn’t disclose sales figures.
Personal spending in the U.S. increased 0.2% in October after little change a month earlier, Commerce Department figures showed Nov. 26. Incomes also rose 0.2%, less than projected.
Lower fuel costs are helping make those gains seem even bigger. The average price of a gallon of regular gasoline was $2.76 on Dec. 1, the cheapest since October 2010.
That’s helping the outlook for companies such as Cracker Barrel Old Country Store Inc. The Lebanon, Tennessee-based restaurant chain reported sales and earnings that beat analysts’ estimates in the quarter ended Oct. 31 as traffic rose from the year before.
“The gas price really speaks to disposable income from consumers,” Chief Executive Officer Sandra Cochran said on a Nov. 25 conference call. “So certainly during the quarter, we saw the benefit of lower gas prices and would hope to see continued benefit if gas prices stay low certainly in the second quarter from that.”
