Worsening pandemic chills US service sector momentum in November

People walk past the New York Stock Exchange (NYSE) at Wall Street on November 16, 2020 in New York City. Wall Street stocks rose early following upbeat news on a coronavirus vaccine and merger announcements in the banking and retail industries. Angela Weiss / AFP

WASHINGTON (AFP) — The US service sector saw activity continue to grow but at a slower rate in November, according to a survey released Thursday, as the country struggles with a rapidly deteriorating Covid-19 pandemic.

The Institute for Supply Management’s (ISM) services index was at 55.9 percent last month, slightly worse than expected and its second month of slowdown after October’s 56.6 percent reading.

ISM survey chief Anthony Nieves said, “Most companies are cautious as they navigate operations amid the pandemic and the aftermath of the U.S. presidential election.”

The sector remained above the 50-percent threshold indicating expansion, but analysts warned the second consecutive monthly decrease could mean the sector is in for a renewed, pandemic-fueled downturn, after contracting sharply when Covid-19 first struck the United States.

“While the recent string of positive vaccine news is encouraging, services, particularly consumer-facing firms, will not be on a stable footing until broad swathes of the population are immunized and the health crisis is fully over,” Oren Klachkin of Oxford Economics said.

Business activity fell more than three percentage points to 58 percent in the survey, while new orders fell 1.6 points to 57.2 percent.

However, prices rose more than two points to 66.1 percent, and employment climbed to 51.5 percent, a good sign considering many service industry employers were hit by mass layoffs after governments ordered business shutdowns as the pandemic arrived in March.

Of sectors surveyed, 14 reported growth last month but four were in contraction, including real estate, educational services, arts and entertainment and other services.

The “recent spike in the infection rates of Covid-19 have caused us to pause plans to further reopen our campus,” an educational services company told the survey. “Sourcing for the resumption and expanded use of onsite testing of students and staff along with concerns over possible personal protective equipment shortages occupy most staff meetings.”

With coronavirus cases surging to record levels across the US and Congress deadlocked on another spending bill to renew extra support measures to businesses that expired earlier this year, Rubeela Farooqi warned the sector’s growth may not last.

“Risks are to the downside from new restrictions and closures that will weigh on demand and activity going forward,” she said in an analysis.