Service Sector Slows; Labor Market Remains Resilient

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Inside The Sole Choice Shoelace Manufacturing Plant Ahead Of Factory Orders
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By Lucia Mutikani

WASHINGTON -- U.S. service sector activity slowed in November but remained at levels consistent with a steady pace of economic growth for the fourth quarter, a business survey showed Thursday.

Other data reported a small increase in first-time applications for unemployment benefits last week, but planned job cuts announced by companies in November were the fewest in 14 months.

With the labor market showing resilience, economists say it is almost certain the Federal Reserve will raise interest rates at the Dec. 15-16 meeting for the first time in nearly a decade.

%VIRTUAL-pullquote-It will take some pretty bad economic numbers for the Fed to pull back from the brink.%"It will take some pretty bad economic numbers for the Fed to pull back from the brink," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Fed Chair Janet Yellen told lawmakers Thursday that the central bank was close to lifting its key overnight interest rate from near zero. Yellen gave an upbeat view of the economy, saying "growth is likely to be sufficient over the next year or two to result in further improvement in the labor market."

The Institute for Supply Management said Thursday its index of non-manufacturing activity fell to 55.9 last month from a reading of 59.1 in October. A reading above 50 indicates expansion in the service sector.

The new orders index dropped fell 4.5 points to 57.5 last month. There were also declines in measures of service sector employment, backlogs and export orders. Deliveries are slowing and inventories are still considered high which could constrain order growth in the months ahead.

Twelve service industries, including real estate, retail, transportation and warehousing, finance and insurance and public administration reported growth last month. The six industries reporting contraction included wholesale trade, utilities and agriculture.

The report came after news this week from ISM that the manufacturing sector contracted in November for the first time in three years. Still, economists said the soft service sector survey didn't signal a slowdown in gross domestic product growth from the third quarter's 2.1 percent annual rate.

"Even after this drop off, the latest figure was still consistent with real GDP growth of around 2.25 percent," said Daniel Silver, an economist at J.P. Morgan in New York.

There was little market reaction to the economic data, but the U.S. dollar dropped to a near one-month low against the euro after the European Central Bank unveiled a smaller interest rate cut and bond purchases than investors had anticipated. Stocks and Treasury debt prices were trading lower.

Labor Market Resilience

In second report, the Labor Department said initial claims for state unemployment benefits increased 9,000 to a seasonally adjusted 269,000 in the week ended Nov. 28.

It was the 39th straight week that claims held below 300,000, which is normally associated with a healthy labor market. Claims are near levels last seen in 1973 and there is little room for further declines as the labor market normalizes.

The four-week moving average of claims, considered a better measure of labor market trends as it strips out week-to-week volatility, fell 1,750 to 269,250 last week.

In a third report, global outplacement consultancy Challenger, Gray & Christmas said U.S.-based companies announced 30,953 job cuts in November, the smallest amount since September 2014 and down 39 percent from October. There were 1,355 oil-related job cuts, the fewest since June.

Last week's jobless claims have no bearing on Friday's Labor Department employment report for November as they fall outside the survey period. According to a Reuters survey of economists, nonfarm payrolls likely increased 200,000 last month after rising 271,000 in October. The unemployment rate is forecast unchanged at a 7½-year low of 5 percent.

"The claims data suggest that the trend in employment growth remains more than strong enough to keep the unemployment rate trending down over time," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

In a fourth report, the Commerce Department said new orders for manufactured goods increased 1.5 percent after two straight months of declines, on rising demand for transportation equipment and a range of other goods.

9 Numbers That'll Tell You How the Economy's Really Doing
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Service Sector Slows; Labor Market Remains Resilient
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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