Service Industries in U.S. Grew at Slower Pace in November

  • Twelve of 18 industries show growth, led by real estate
  • Services index shows biggest decrease in seven years

Service industries in the U.S. expanded in November at the slowest pace in six months, indicating malaise in manufacturing is impeding progress in other parts of the economy.

The Institute for Supply Management’s non-manufacturing index declined to 55.9 from October’s 59.1, the biggest monthly decrease in seven years, the Tempe, Arizona-based group said Thursday. A gauge above 50 denotes expansion, and the median estimate in a Bloomberg survey of economists called for a reading of 58.

The setback in the industries that make up almost 90 percent of the economy coincides with the weakest reading in manufacturing since June 2009. While factories bear the brunt of a stronger dollar and sluggish sales overseas, service producers probably will be more insulated by steady household demand and improving real-estate and labor markets.

The decline in the gauge “brings it back to a level much more in keeping with aggregate economic growth and most other indicators of the overall economy,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said in a research note. “This should be seen as a normalization of the data rather than as something more ominous.”

Estimates in the Bloomberg survey of 68 economists ranged from 54.9 to 61. The measure averaged 57.5 this year through October, compared with 56.3 in all of 2014.

Industry Breakdown

Twelve industries showed growth in November, led by real estate, while six reported contraction, the report showed.

The new orders gauge fell to 57.5 in November from 62 the prior month. The measure of services employment decreased to 55 from 59.2, which was the second-highest since August 2005.

The business activity index, which parallels the ISM’s factory production gauge, dropped to 58.2 last month from 63 in October. A measure of prices paid advanced to 50.3, indicating costs were barely rising, from 49.1.

The ISM services survey covers an array of industries, including retailing, health care, agriculture and construction. It only leaves out manufacturing, which accounts for about 12 percent of the economy.

Steady job growth this year has lifted demand, with employers hiring at a 206,000 monthly pace on average through October compared with 260,000 in 2014 that was the strongest in 15 years. The economy probably added 200,000 jobs in November, according to the median in a Bloomberg survey ahead of Friday’s report from the Labor Department.

Manufacturing Slump

The group’s manufacturing survey earlier this week showed factories unexpectedly contracted in November at the fastest pace since the last recession as bloated stockpiles prompted cutbacks in orders and production. The gauge dropped to 48.6, the lowest since June 2009, from 50.1 in October.

The data across industries provide Federal Reserve policy makers with more clues about underlying strength in domestic demand as they weigh when to raise the benchmark interest rate. The officials next meet Dec. 15-16 in Washington, when economists project they will increase the rate for the first time since 2006.

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