Implications: Growth in the service sector continued to accelerate in November, with the composite index hitting the highest level on record, registering 2.4 percentage points above the previous all-time high set just last month, and marking the fifth time this year a new record has been set. Gains were broad-based, with all 18 industries reporting growth. Much of the elevated reading can be attributed to the indexes for business activity and new orders, which also both sit at all-time highs. Notably, the business activity index surged to 74.7 from 69.8 in November, proving Americans are itching to be out despite increasing COVID fears. Survey comments continue to be dominated by discussions related to supply chain shortages, signaling the possibility of even faster growth in the service sector if these problems can be fixed. On that note, today's report showed recent progress for supply-chains on several fronts. Though still elevated, the backlog of orders index fell to 65.9 from 67.3, while the prices paid index ticked down from its record high, and the supplier deliveries index remained steady. Only time will tell if these improvements continue into the start of 2022, but recent similar movements from the ISM Manufacturing report out earlier this week also signal that the tides may be shifting. Importantly, there was also progress on the labor front, with the employment index shooting up to 56.5 from 51.6. Hiring in the service sector should be a tailwind for activity in the months ahead and help alleviate some of the supply-chain pressures that have been ingrained since the beginning of the pandemic. It's clear the question that must be answered in the course of the service sector recovery is not whether there will be enough demand, but if there will be enough supply to meet it. In other recent news, car and light truck sales declined 0.7% in November to a 12.9 million annual rate. These sales are down 19.0% from a year ago. The key hurdle for these sales remains supply constraints, largely due to a shortage of computer chips. Look for that problem to ease over the next year, resulting in a faster pace of sales.
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Posted on Friday, December 3, 2021 @ 11:54 AM
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