U.S. services business continues to grow strongly in November, service providers upbeat about growth prospects

U.S. services business grew to a 12 month high in November. Service providers experienced a strong growth of business activity in November, assisted by the most rapid rise in new work for a year. The seasonally adjusted final Markit U.S. Services Business Activity Index came in at 54.6 in the month, to stay above the 50 no-change value for the ninth straight month.

Even if the latest reading was slightly lower than October’s, the pace of growth stayed firmer than at any time in the first half of 2016. According to survey respondents, the improved client sentiment and a favorable domestic economic backdrop had assisted in stimulating business activity in November.

The latest survey data hinted at a continued recovery in new business growth from the four-month low registered in September. Furthermore, the pace of expansion accelerated to its most rapid level since November 2015. Anecdotal evidence implied that the new project launches and generally rebounding demand patterns had stimulated new orders in November, along with competitive pricing strategies.

In November, payroll numbers were up again, with the pace of job creation reaching its strongest since July. But the most recent upturn in staffing levels continued to be weaker than the average recorded since the jobs recovery started in early 2010. Several companies commented on attempts to stimulate capacity in line with long-term expansion plans and hopes of a sustained rebound in economic conditions. This in turn added to a reduction in backlogs of work for the first time in five months in November.

There were signs of a squeeze on operating margins throughout the service economy in November, with input cost inflation close to the 15-month peak witnessed in October. Survey respondents linked this to increased food prices and attempts by suppliers to pass on the increased costs of raw materials. But prices charged by service sector companies increased just slightly in November, said Markit.

For the next 12 months, service providers continue to be optimistic regarding their growth prospects. The recent reading was one of the most solid since late 2015, but a tad lower from October’s recent peak.