July 28, 2021

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Growth in services sector slows a bit

3 min read

story.lead_photo.captionA waiter works at a restaurant with outdoor seating Tuesday in Pasadena, Calif. The U.S. services sector notched its sixth consecutive month of expansion in November.
(AP/Marcio Jose Sanchez)

SILVER SPRING, Md. — The U.S. services sector, where most Americans work, registered its sixth consecutive month of expansion in November.

The Institute for Supply Management reported Thursday that its index of services activity declined slightly to a reading of 55.9 last month, from a reading of 56.6 in October. Readings above 50 represent expansion in services industries such as restaurants and bars, retail stores and delivery companies.

“Respondents’ comments are mixed about business conditions and the economy,” Anthony Nieves, chairman of the institute’s Business Survey Committee, said in a statement. “Most companies are cautious as they navigate operations amid the pandemic and the aftermath of the U.S. presidential election.”

At the same time, sectors such as information and finance have remained strong throughout the pandemic. A consumer shift to online purchases also indicates online retailers and transportation companies will continue expanding during the Christmas shopping season.

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Although broadly viewed as a good report, it was the second straight month that growth in the service sector slowed. That could be worrisome as covid-19 infections rise and the weather turns colder.

Many restaurants, whose indoor capacities have been eliminated or reduced greatly, could be facing a make-or-break winter if fewer people take tables at the hastily assembled outdoor dining areas that popped up over the summer. A new surge in covid-19 cases has already led to many mandatory restaurant closures until case numbers decline.

On Wednesday, the U.S. recorded over 3,100 covid-19 deaths, obliterating the single-day record set last spring, while the number of Americans hospitalized with the virus eclipsed 100,000 for the first time.

“While the recent string of positive vaccine news is encouraging, services, particularly consumer-facing firms, will not be on a stable footing until broad swaths of the population are immunized and the health crisis is fully over,” analysts from Oxford Economics wrote in a note to clients.

Respondents to the institute’s November survey were anxious about the current business climate.

“Conflicting national, regional and local guidelines/requirements for covid-19 issues are becoming increasingly difficult to navigate, leading to a lot of just-in-time-type purchases,” said a respondent from the hotel and food services sector.

Several respondents, including one from the health care sector, reported continued difficulty in obtaining personal protective equipment because of rising covid-19 cases.

Thursday’s report showed that business activity declined slightly as did new orders, although both remained in expansion territory. The index measuring employment increased to 51.5, from 50.1, which was very close to contraction last month. The gauge for prices also increased from October.

Out of the 18 service-sector categories, 14 reported growth in November, including transportation and warehousing, management and support services, health care and social assistance, hotel and food service, construction and retail trade.

The services sector had been growing for 122 consecutive months — more than a decade — before contracting in April and May as the coronavirus outbreak forced many businesses to close and people to stay home.

A separate report from the institute Tuesday showed factory activity also cooled in November but remained robust. Difficulties of hiring workers and temporary shutdowns for sanitation will likely limit manufacturing growth potential, the institute said.

Information for this article was contributed by Matt Ott of The Associated Press and by Henry Ren of Bloomberg News.

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