Services industries in the U.S. unexpectedly expanded at a faster pace than forecast in November, indicating the economy is holding up in the face of the so-called fiscal cliff.
The Institute for Supply Management’s non-manufacturing index rose to 54.7 from 54.2 in October, the Tempe, Arizona- based group said today. Economists projected the index would ease to 53.5, according to the median estimate in a Bloomberg survey. Readings above 50 signal expansion.
Increased sales of autos, the start of the holiday shopping season, and a pickup in homebuilding are driving gains at companies that account for almost 90 percent of the economy. Growth at service producers is helping underpin the expansion as slower capital investment and weaker overseas demand hamper manufacturing.
“The service sector is still advancing and doing better than the manufacturing sector,” Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, said before the report. “Retailers got off to slow start in the beginning of the month, probably due to Sandy, but they picked up steam later on. Homebuilder confidence and consumer confidence hit another high in November.”
Estimates in the Bloomberg survey of 75 economists ranged from 51 to 54.7. The index has averaged 53.4 since the recession ended in June 2009.
The survey’s employment gauge fell to 50.3, the lowest since July, from 54.9 in the prior month. The measure of new orders increased to 58.1 from 54.8. A gauge of business activity rose to 61.2, the highest since February, from 55.4. The index of prices paid fell to 57 from 65.6.
The ISM’s manufacturing index, released Dec. 3, unexpectedly contracted last month to the lowest level since July 2009. Manufacturers pointed to the uncertainty surrounding the so-called fiscal cliff of spending cuts and tax increases as the major reason for the slowdown, rather than Sandy, survey chairman Bradley Holcomb said.
The services sector, which includes industries ranging from utilities and retailing to health care, housing and finance, is less dependent on capital spending, which has declined in the face of the fiscal cliff, and export demand, which has weakened as the euro-zone economy contracts.
Recent signs have shown some services are cooling. Retailers in the U.S. posted November same-store sales that trailed analysts’ estimates after the storm, which made landfall Oct. 29, depressed traffic early in the month. Demand at Macy’s Inc., the second-biggest U.S. department- store company, fell 0.7 percent. Target Corp., the second-largest U.S. discount chain, posted a 1 percent decline in same-store sales.
At the same time, auto dealers experienced a rebound in November sales after Sandy. The annualized industrywide sales rate of cars and light trucks, adjusted for seasonal trends, rose to 15.5 million last month, the best monthly pace since February 2008, according to Ward’s Automotive Group.
Apart from the storm, consumer confidence has been on the rise in the U.S., which could lift demand for services. The Conference Board’s sentiment index climbed this month to the highest level since February 2008, a report showed last week.
Households felt good enough to head to shopping centers on Black Friday weekend. Retail sales rose 13 percent to $59.1 billion in the four days starting Nov. 22 after a 16 percent increase in the similar period last year, according to the National Retail Federation.
A stronger housing market will also help drive the non- manufacturing sector. Construction spending climbed almost three times more than forecast in October. Homebuilder confidence rose to a six-year high in November, according to the National Association of Home Builders/Wells Fargo index of builder confidence, released Nov. 19.
“Consumers are feeling good, housing is rebounding, and we remain confident that there’ll be a resolution in Washington,” Kurt McNeil, General Motors CO. vice president of sales operations, said during a teleconference on Dec. 3.
Faster payroll growth may be the key to unlocking greater sales and confidence gains.
Another report today showed employment cooled in November, restrained by Sandy. Companies added 118,000 workers after a revised 157,000 gain, according to Roseland, New Jersey-based ADP Research Institute. The report indicated that the storm reduced payrolls by about 86,000.