U.S. services sector activity moderated in November, signaling a slowdown after recent strong growth. The Institute for Supply Management (ISM) reported its nonmanufacturing purchasing managers index (PMI) dropped to 52.1 from October's 56.0, the highest level since August 2022. Despite the decline, the PMI remains above the threshold indicating expansion, reflecting continued growth in the services sector, which comprises over two-thirds of the U.S. economy. Businesses expressed concerns about potential tariffs from President-elect Donald Trump’s administration, which could escalate costs.
The ISM report highlighted declines across new orders, production, and employment, contributing to the overall softening in activity. Meanwhile, service sector inflation pressures persisted, with little change in prices and an improvement in supplier delivery times. Economists had anticipated a more modest dip in PMI to 55.5, signaling that businesses remain cautious amid uncertainty about future trade and tax policies under the incoming administration.
Market Overview:- ISM services PMI fell to 52.1 in November, down from 56.0 in October.
- Persistent inflation in services complicates economic outlook.
- Tariff concerns weigh on capital spending and business sentiment.
- Declines observed in new orders, production, and employment measures.
- Improved supplier delivery times offer limited relief.
- Businesses express concern about Trump’s proposed tariffs on imports.
- Firms remain cautious, awaiting clarity on trade and regulatory policies.
- Inflation pressures in services may influence Federal Reserve decisions.
- Fourth-quarter growth remains supported by expansion in key sectors.
Economic uncertainty continues to weigh on business sentiment, with many firms delaying capital investments ahead of policy shifts expected under the Trump administration. Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, suggested that while long-term prospects remain positive, companies are adopting a wait-and-see approach.
As the services sector cools, its resilience in maintaining expansion is noteworthy, though inflationary pressures may pose challenges. Businesses are keenly focused on potential policy changes, particularly tariffs, which could shape economic conditions and investment strategies in 2024.
