Forex: Service Sector Shows Unexpected Contraction In November

(RTTNews) - Activity in the service sector unexpectedly contracted in the month of November, according to a report released by the Institute for Supply Management on Thursday, with the contraction coming on the heels of two consecutive months of expansion.

The ISM said its index of activity in the service sector fell to 48.7 in November from 50.6 in October, with a reading below 50 indicating a contraction in the sector. Economists had been expecting the index to increase to a reading of 51.5.

Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee said, "Respondents' comments remain cautious about business conditions and reflect concern over the length of time for economic recovery."

The report showed that the non-manufacturing business activity index fell to 49.6 in November from 55.2 in October, reflecting contraction after three consecutive months of growth.

While the new orders index also edged down to 55.1 in November from 55.6 in the previous month, it still indicated continued growth.

At the same time, the ISM said the prices index jumped to 57.8 in November from 53.0 in October, indicating an acceleration in the pace of growth.

The employment index also edged up to 41.6 in from 41.1 in the previous month, although it continued to indicate a contraction in employment.

Rob Carnell, chief international economist at ING, said, "The very modest gain in the employment index from 41.1 to 41.6 is, we believe, more consistent with our small improvement in the payrolls figure to -165K, than with the -125K consensus expectation."

"If payrolls do turn out to be more negative than the market is thinking, as this survey suggests, then the tenuous risk-on stance of markets could be at risk, as too could euro strength, equities and gold," Carnell added.

On Friday, the Labor Department is due to release its report on the employment situation in the month of November, with economists expecting the report to show a decrease of about 125,000 jobs in November following a decrease of 190,000 jobs in October.