WASHINGTON D.C.: In November, US services industry activity unexpectedly picked up, with employment levels increasing, indicating economic momentum amidst an anticipated recession next year.

A survey by the Institute for Supply Management (ISM) released this week showed that the economy created jobs in November and wages increased, while consumer spending also rose in October.

The data showing strong growth raises the risk that the Federal Reserve will continue hiking interest rates and lift its policy rate to a higher level than the recently projected 4.6 percent, the fastest cycle since the 1980s.

“While that is good news for the growth outlook, it is not so great for the Fed trying to dampen demand and ease inflation,” said Priscilla Thiagamoorthy of BMO Capital Markets in Toronto, as quoted by Reuters.

This year, the Fed has raised its policy rate by 375 basis points from near zero to a 3.75 percent to 4.00 percent range.

Last month, thirteen services industries, including construction, healthcare and social assistance, retail trade, as well as professional, scientific and technical services, reported growth, but information, wholesale trade and management of companies and support services reported declines.

“New business requests are solid,” reported companies in the construction industry, while professional, scientific and technical services firms stressed that though job openings continued to decrease, opportunities for growth remained “with demand for top talent still high and availability still rather scarce.”

Retailers reported business as “stable,” while wholesalers said in a statement, “business volume appears to be leveling out based on a month-over-month comparison, although we are up significantly when compared to the same month last year.”

The solid economic data has raised optimism that the widely feared economic downturn in 2023 will be short and mild.
However, the data does not show the weakness in the manufacturing sector, which accounts for 11.3 percent of the US economy.

A report from the Commerce Department showed factory orders jumped 1.0 percent in October after rising 0.3 percent in September.

“Even as we see a reprieve in goods prices, the slow descent in the larger services sector speaks to the fact that it will take time for inflation to return to target and that the Fed still has work to do in its fight against inflation,” noted Shannon Seery, economist at Wells Fargo in New York, according to Reuters.