Services Slowing

Just like the reading on manufacturing earlier this week, the ISM’s Non-Manufacturing survey showed overall growth in November, albeit at a slower rate. The headline reading for the services index beat expectations (55.9 vs 55.8 expected) but still came in below last month’s level of 56.6. That is a sixth consecutive month of expansionary readings (readings above 50 indicate growth/below 50 indicate contraction) although the reading for November was the lowest of those six months. The same applies to the composite of the manufacturing and services which fell from 56.9 to 56.1.

Looking across each of the individual indices of the report also resembled the manufacturing report. While most components continue to be consistent with further growth, November did see some slowing across a range of indicators.

The improvements in business activity have considerably moderated over the past few months. After a near-record high reading back in July, this index has fallen every month except for in September. At 58, the index is around levels similar to just before the pandemic began earlier this year. A slowdown in orders likely plays a role in this as the index for New Orders similarly sits in the middle of its historical range following a 1.6 point decline to 57.2 in November. While that is still indicative of new orders growth, it would be the slowest growth since August.

Export order growth slowed in November as that index fell to a barely expansionary reading of 50.4. While orders from outside the US were a bit weak, the index for imports rose to 55 which is the strongest level since January of this year (55.1). One important thing to note with these indices, though, is less than half of survey respondents report that they do not use or track imports/exports (only 29% for exports and 37% for imports). In other words, these readings only apply to a smaller sample of responding firms.

The continued growth in new orders has resulted in smaller inventories. For only the second time in the index’s history (the other instance being March of this year), the index for Inventory Sentiment came in below 50. That indicates a larger share of companies are reporting that inventories are too low rather than too high. As a result, the index for Inventories showed a contractionary reading of 49.3. That is not any sort of extreme reading but again points to declining inventories.

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