After spiking to 2016 highs in September/October, the US Services economy slipped lower in November according to Markit with signs of margin squeezes appearing as input cost inflation hits a 15-month high, but prices charged remained flat, and payrolls growth remains weak (well below average). However, ISM reported a big beat, with Services at the highest since Oct 2015 (despite a drop in new orders).
However, as Markit notes, survey respondents noted higher food prices and efforts by suppliers to pass on increased raw material costs. However, prices charged by service sector firms rose only slightly in November.
Payroll numbers increased again in November, with the rate of job creation reaching its strongest since July. However, the latest upturn in staffing levels was still weaker than the average recorded since the jobs recovery began in early-2010.
The full ISM Breakdown…
shows Services new orders weaker…
The Respondents were mixed:
"We had almost [a] 9 percent jump month-over-month on active, secured projects in our variable side of business. We also acquired new customers in [the] past two months." (Construction)
"Looking to close out Q4 with no significant changes positive or negative. Profits overall have been above projections." (Finance & Insurance)
"Our health plan business still continues to struggle with rising costs under Obamacare, which is causing the whole company to experience cost pressures." (Health Care & Social Assistance)
"Current business conditions continue to be depressed more than desired; although, there appears to be slight improvement. As our business is primarily driven by the oil & gas market, we follow the price of oil fairly close." (Mining)
"Outlook for Q1 2017 is looking favorable with Q4 2016 ending as projected, perhaps slightly lower." (Professional, Scientific & Technical Services)
"Increased sales for [the] holidays." (Retail Trade)
"After the beginning of the fiscal year's flurry of orders, things have tapered off." (Public Administration)
Finally, commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“The US economy is seeing robust growth, with the business surveys pointing to encouragingly solid rates of expansion in both manufacturing and services.
“Looked at together, the two PMI surveys point to the pace of economic growth holding steady on October’s 11-month high, indicating that GDP is set to rise by 0.6% (2.5% annualized) in the fourth quarter. Both sectors are benefitting primarily from stronger domestic demand.
“The solid business survey readings not only add to the widely held view that the Fed is near certain to raise interest rates at its December meeting, but also raise the prospect of more aggressive than previously anticipated interest rate hikes in 2017.”
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