U.S. service sector activity picks up in November - ISM survey

WASHINGTON (Reuters) - U.S. services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy as it braces for an anticipated recession next year.

The Institute for Supply Management (ISM) said on Monday its non-manufacturing PMI increased to 56.5 last month from 54.4 in October, which was the lowest reading since May 2020.

Economists polled by Reuters had forecast the non-manufacturing PMI slipping to 53.1. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.

The survey followed on the heels of data last Friday showing stronger-than-expected job and wage growth in November. Consumer spending also accelerated in October. The upbeat reports have raised optimism that the widely feared economic downturn in 2023 would be short and mild. Some economists are even betting that a recession could be avoided, with growth just slowing sharply.

The Federal Reserve's fastest rate-hiking cycle since the 1980s as it wages war against inflation is behind the hand wringing about a recession. Fed Chair Jerome Powell said last week the U.S. central bank could scale back the pace of its rate increases "as soon as December."

The acceleration in services industry activity confirms that spending is shifting away from goods and that the inflation baton has been handed over to services, indicating that overall price pressures in the economy could take a while to subside.

Manufacturing activity contracted in November for the first time in 2-1/2 years, the ISM reported last week.

In November, the ISM's measure of services industry employment increased to 51.5 from 49.1 in October. But with orders stagnating, further gains are likely to be limited.

The survey's gauge of new orders received by services businesses dipped to 56.0 from 56.5 in October. Exports tumbled likely because of slowing global growth and a strong dollar.

A measure of prices paid by services industries for inputs slipped to 70.0 from 70.7 in October as supply continued to improve. The survey's measure of services industry supplier deliveries fell to 53.8 from 56.2 in October.

A reading above 50 indicates slower deliveries. Businesses continued to whittle down the backlog of unfinished work.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)