US Services Sector Growth Accelerates, Price Pressures Ease Sharply
November ISM Services PMI tops forecasts at 52.6, while a key inflation metric cools, bolstering hopes for an economic 'soft landing'.
The U.S. services sector, the primary engine of the nation's economy, expanded more quickly than anticipated in November, while a crucial gauge of inflation within the sector cooled significantly, providing fresh evidence for the Federal Reserve's pursuit of a 'soft landing'.
The Institute for Supply Management (ISM) reported Tuesday that its Services Purchasing Managers' Index (PMI) registered 52.6 for November, surpassing consensus estimates of 52.1. This reading, well above the 50.0 threshold that separates growth from contraction, indicates a resilient services economy driven by steady consumer demand. The positive headline number initially helped U.S. stocks recover from early session dips, as investors weighed the optimistic growth signals.
More critically for markets and policymakers, the report's Prices Paid component, a closely watched indicator of inflationary pressures, fell sharply to 65.4 from 70.0 in the prior month. This marked the most significant drop in this index in several months and suggests that price pressures, while still elevated, are moving in the right direction.
"This is the kind of report the Federal Reserve has been hoping for," one analyst noted. "It points to an economy that is still growing at a healthy clip but without adding significant fuel to the inflation fire. It fits the 'soft landing' narrative almost perfectly."
The combination of robust growth and moderating inflation reinforces the view that the central bank may be able to tame rising prices without triggering a recession. The data led to a weakening of the U.S. Dollar as traders increased bets on a more dovish stance from the Fed in the coming months.
Beneath the headline number, the details of the ISM survey were largely positive. The Business Activity Index registered a strong 55.1, while the New Orders Index also remained firmly in expansionary territory at 55.5, signaling a solid pipeline of future business.
However, the report was not uniformly strong. The employment index contracted for the sixth consecutive month, registering 48.9. This persistent weakness in services hiring, coupled with a separate ISM report from last week showing a contraction in the manufacturing sector, paints a more complex picture of the U.S. economy. Some economists have begun to voice concerns about a potential "mild stagflation mix", where services growth masks underlying weakness in other areas.
For now, the market is focused on the positive implications for monetary policy. The strong services data gives the Fed cover to hold interest rates steady, while the cooling inflation component supports the case for potential rate cuts in 2026. The report provides policymakers with greater flexibility as they navigate the final, challenging phase of their fight against inflation.