The Institute for Supply Manufacturing (ISM) index for non-manufacturing climbed from 54.2 percent in October to 54.7 percent in November. The figure showed that the services industry in the United States increased at a faster rate than expected, and the economy remain steady, despite the threat of a possible fiscal cliff, according to a report from Bloomberg.
Some of the major factors driving the expansion in the services industry include the growth of sales in the auto industry, home construction, and the start of the holiday shopping season. These factors represent 90 percent of the country’s economy. The expansion of the services industry compensates the slow capital investment and decline in manufacturing, due to the weak demands overseas.
Prior to the ISM Index report, RBS Securities economist Guy Berger commented that the services industry is doing better than the manufacturing industry. He said, “The service sector is still advancing and doing better than the manufacturing sector,” 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.”
Based on the survey conducted by Bloomberg on 75 economists, their estimated index for the services industry is between the ranges of 51 percent to 54.7 percent. The estimated median slightly dropped to 53.5 percent in November. An index higher than 50 percent indicates expansion.
According to Bloomberg, the survey showed that the employment index declined from 54.9 percent in October to 50.3 percent in November, the lowest level since July.
On the other hand, the gauge of new orders jumped from 54. 8 percent to 58.1 percent, while the index of prices paid dropped from 65.6 percent to 57 percent. The business activity index rose to 61.2, the highest level since February.
Meanwhile, the manufacturing industry contracted by 2.2 percent to 491 percent based on the ISM index report. The decline in the manufacturing index was caused by uncertainties related to the fiscal cliff, according to ISM chairman Bradley Holcomb.
Capital spending declined amidst the economic crisis in the European region and the looming fiscal cliff in the United States. The services industry including utilities, retail, healthcare, housing, and finance do not depend so much on capital spending.
Last month, the retail sector indicated a slowdown in same-store sales after the hurricane on the east coast. Some of the companies that reported a decline in same-store sales such as Macy’s, Inc. (NYSE:M) and Target Corporation (NYSE:TGT). The National Retail Federation said retail sales during the Black Friday sales event increased by 13 percent to $59.1 billion.
On the other hand, the automakers reported an increase in sales last month. According to Ward’s Automotive Group, the industry wide sales rate of vehicles increased to 15.5 million, the highest monthly sales recorded since February 2008.