(Reuters) - The U.S. services sector picked up in November amid an increase in business activity, although new orders remained flat and a gauge of input inflation dipped as the lagged effects of higher interest rates start to have a greater impact.
The Institute for Supply Management (ISM) said on Tuesday that its non-manufacturing PMI rose to 52.7 in November from 51.8, which was a 5-month low.
A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy. Economists polled by Reuters had forecast the index edging up to 52.0.
The Federal Reserve has raised its policy rate by 525 basis points over the past 20 months to the current 5.25%-5.50% range to quell high inflation largely caused by the impact of the COVID-19 pandemic.
While the economy continued to flourish over the summer, economists expect demand to weaken this quarter, particularly for services, as consumers shift more of their spending back to goods. That would be welcomed by the U.S. central bank in its battle to bring inflation back to its 2% target rate given the stickiness of service sector inflation.
There were encouraging green shoots for policymakers. A measure of new orders received by services businesses was 55.5 last month, unchanged from October, while a measure of prices paid for services businesses for inputs dipped to 58.3 from 58.6 in October.
Consumer spending rose moderately in October, while the annual increase in inflation was the smallest in more than 2-1/2 years, government data showed last Thursday. So-called super core inflation, which is Personal Consumption Expenditures services excluding energy and housing, rose 0.1% after increasing 0.4% in the prior month
A measure of services sector employment rose to 50.7 from 50.2 in October, the ISM survey also showed.