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US service economy slows for 5th consecutive month in November: Markit

H.S. Borji
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The US service economy slowed for the fifth consecutive month in November, easing to the lowest level since April amid slower upturns in new business, casting doubts about the US recovery in the fourth quarter.

Markit Group’s gauge of US service activity eased in November to 56.3 from 57.1. A median estimate of economists called for a decline to 56.8. A reading above 50 signifies expansion in service activity, whereas a reading below that level indicates contraction.

The PMI composite – a gauge of service and manufacturing activity – dipped to 56.1 from 67.2. Last week Markit said manufacturing output weakened to a ten-month low in November as a result of a downturn in new export sales and new order growth. The flash manufacturing PMI estimate was at 54.7, down from 55.9.

The flash estimate represents 85 percent of total survey responses. Markit Group will post its final services PMI estimate December 3.

November marked the thirteenth consecutive month service sector activity had increased, the advance estimate revealed today. However, the data suggest output growth continued to fall off June’s post-crisis peak, as overall business activity continued to soften. The latest uptick in new work was the weakest in seven months, as businesses acknowledged weaker client confidence.

Despite November’s fresh lows, businesses continued to hire at a steady rate, as backlog accumulation continued to pressure operating capacity. Markit said November unfinished work increased for the fourth consecutive month in November, the longest stretch of sustained backlog accumulation since 2012-13. Overall, businesses remained confident about their outlook, which reflected in the increased payroll numbers.

Based on the latest evidence, Markit expects payrolls to increase by roughly 200,000 in November. US employers added 214,000 nonfarm payrolls in October, the eighth time in nine months job growth was above 200,000.

“A fifth-consecutive monthly slowing in growth in the service sector adds to signs that the economic upturn has lost considerable momentum, though it’s important to note that the pace of expansion remains robust by historical standards,” said Markit chief economist Chris Williamson in a statement.

Combined with last week’s report on manufacturing, the services indicator suggests the US economy was losing momentum in the fourth quarter after growing at a solid rate in the July to September period. US gross domestic product grew 3.5 percent year-on-year in the third quarter, well above estimates. However, the Commerce Department is expected to revise down its third quarter estimate on Tuesday.

The November data “puts the economy on course to grow at a 2.5% annualised rate at best in the fourth quarter,” Williamson added. “With extreme weather hitting parts of the country, growth cloud slow even further.

The US economy is forecast to grow as much as 2.2 percent this year, according to the Federal Reserve. The economy is expected to rebound as much as 3 percent next year, according to the latest summary of economic projections.

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