U.S. Service-Sector Growth Accelerates in November

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Barista Sarah Dacuno serving a customer at a Starbucks in Seattle on May 29.

Barista Sarah Dacuno serving a customer at a Starbucks in Seattle on May 29.


Photo:

Elaine Thompson/Associated Press

The U.S. service sector expanded at a faster pace in November, a sign of continued strength in the domestic economy as the fourth quarter progressed.

The Institute for Supply Management’s nonmanufacturing purchasing-managers index rose to 60.7 in November from 60.3 in October. Economists surveyed by The Wall Street Journal had expected the index to fall to 59.0.

“Respondents remain positive about current business conditions and the direction of the economy,” said Anthony Nieves, chair of the ISM nonmanufacturing business-survey committee, although he said concerns persist about employment resources and the impact of tariffs.

The survey provides a barometer for the nation’s restaurants, builders, bankers, and other service providers. Consumer spending is the primary driver of the U.S. economy, and about two-thirds of those outlays are on services.

The “remarkably strong” survey “might mean that retailers and other services providers are bullish about the holiday season, perhaps anticipating that the steep drop in gas prices will boost consumers’ spending power, despite the turmoil in the stock market,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients.

The employment index decreased slightly in November to 58.4 from 59.7 in October, and Mr. Nieves said that companies are struggling to find skilled workers as the low unemployment rate means the labor pool has shrunk.

Friday’s nonfarm payrolls report from the Labor Department will offer a closer look at service-sector employment. Economists surveyed by The Wall Street Journal think the U.S. economy added 198,000 jobs last month, down from 250,000 in October.

Price pressures increased at a quicker clip in November. According to the ISM report, the index for prices increased to 64.3 from 61.7.

The ISM nonmanufacturing report comprises mainly comments from service-sector companies that make up the bulk of the U.S. economy, but it also includes construction and public administration.

Trade tariffs continued to cause uncertainty and “some companies are being a little bit cautious in this point in time” about investment headed into 2019, according to Mr. Nieves.

Services activity by its nature provides a view of domestic demand since relatively few services are imported. Domestically oriented areas of the economy have been advancing steadily in recent months, with sustained job growth and solid consumer spending.

A separate ISM report on manufacturing, released earlier this week, showed that growth was stronger than expected in November, as companies rushed through orders before the end of the year to get ahead of expected tariff increases.

Write to Harriet Torry at harriet.torry@wsj.com