MNI INTERVIEW: US Services Activity Cools To Trend-ISM Chief
MNI (WASHINGTON) - The U.S. service sector weakened in November on a narrow decline in real estate, returning to a trend of slow growth that is likely to continue, Institute for Supply Management chair Steve Miller told MNI Wednesday.
The ISM composite fell 3.9ppts to 52.1, below market expectations of 55.5 and the lowest since August. Business activity, new orders, and employment components all declined and survey participants mentioned policy uncertainty weighed on activity.
"This seems like more of the same to me after recovering from the port and hurricane activity" Miller said, referring to recent months of growth that surprised to the upside. He noted the November reading is now back to about the average over the last 12 months.
Business activity fell 3.5ppts to 53.7, new orders declined 3.7ppts to 53.7, and employment eased 1.5ppts to 51.5. The prices subindex rose a tenth to 58.2 and the supplier deliveries component declined 6.9ppts to 49.5, indicating faster supplier delivery performance.
Calling the November report stagflationary "is probably a little strong," Miller said, but there is no doubt that ISM data suggest trend services growth has declined this year.
BROAD-BASED EXPANSION
One optimistic sign is that "the vast majority" of industries have grown in each the last three reports, he said. "We had 14 industries in expansion territory last month and we got 14 industries again this month, but real estate, rental and leasing is the one that flipped from expansion to contraction, and their commentary explains it is seasonal, not an economy problem."
The new orders subindex "came down a bit" in November, after surging in September and October on building inventory for the potential port strikes and due to hurricane impacts.
"What we saw is 13 of 18 industries reporting expansion in the new orders and 14 of 18 reporting expansion in business activity. It still seems solidly positive, although back to the trend line."
Survey respondents aren't seeing Federal Reserve interest rate cuts buoy their industries, particularly in construction and housing as the 30-year mortgage rate hovers near 7%. (See: MNI INTERVIEW: Ex-Fed's Blinder Sees Stagflation Shock Ahead)
"Any place where there was a negative comment around the economy, there was at least one offsetting, positive comment in the same industry," Miller said. "On the tariffs, it was more of a curious wait-and-see attitude. There isn't much certainty about how much impact there's going to be, and in agriculture there was some concern around retaliatory tariffs."