Implications: Sentiment in the service sector hit the highest level in more than a year in November and has signaled growth for 82 consecutive months. The high level in November was broad-based, with fourteen of eighteen industries reporting expansion. Meanwhile, all major measures of activity remain above 50, signaling expansion as well. New orders continue to grow, but at a slightly slower pace than in October, while all other major indexes showed a pickup in pace. Business activity and employment both showed the fastest pace of expansion in more than a year, as companies work to fill the steady flow of new orders arriving. The healthy readings on new orders and business activity both suggest the service sector should continue to grow in the months ahead. While employment has been a weak spot in the manufacturing sector, the much larger service sector continues to expand, in-line with the 188,000 monthly nonfarm jobs growth seen over the past year. And while the pace of job growth may slow modestly as the labor market tightens, employment gains should put continued downward pressure on the unemployment rate while pushing up wage growth. No matter how you cut it, the labor market looks very close to the Fed's "full employment" target. On the inflation front, the prices paid index was essentially unchanged at 56.3 in November from 56.6 in October, representing the second highest reading in more than two years (behind only October's). Rising costs for airfare, copper, and fuels more than offset declining prices for beef and dairy. With a strong employment reading and inflation showing a pickup in pace over recent months, today's report from the service sector points full steam ahead for a rate hike at next week's Fed meeting.
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Posted on Monday, December 5, 2016 @ 11:25 AM
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