The ISM Services purchasing managers index released Monday unexpectedly jumped to 56.5 in November, rebounding from a more than 2-year low of f 54.4 hit in October and beating market forecasts of 53.3. Business activity increased faster (64.7 vs. 55.7) and employment rebounded (51.5 vs. 49.1), prompted by a new fiscal period and the holiday season. Also, price pressures eased (70.0 vs. 70.7), inventories shrank less (47.9 vs. 47.2) and supplier deliveries continued to slow (53.8 vs. 56.2), with increased capacity and shorter lead times accounting for an improvement in supply chain and logistics performance. Meanwhile, a slowdown was seen in new orders (56.0 vs. 56.5) and backlogs of orders (51.8 vs 52.2).
Higher interest rates are not yet significantly impacting the U.S. economy. The data signals the Federal Reserve could raise interest rates for longer. Traders are still pricing in a 50-basis-point hike following the Dec. 13-14 Fed monetary policy meeting, with a 20% chance of another 75-basis-point increase.
