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Economic Commentary

Service sector still shows solid growth: Weekly Economic Review & Outlook

December 12, 2022
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The ISM services index continues to suggest solid growth in the services sector, in contrast to the S&P survey which has been in contraction for the last five months. On the inflation front, producer prices in November came in stronger than expected, but wholesale prices continue to cool, while consumer sentiment saw a solid rise but remains at very depressed levels.

Key Takeaways:


What we learned last week: (pg. 1)

The trend is flat, and growth is solid for services

The ISM services index defied expectations of slower growth, and the trend for growth over the last six months has been little changed.

Producer prices continue sharp decline

The 12-month change in the PPI has fallen in each of the last five months and more than four percentage points since March.

What we’re watching this week: (pg. 2)

December 13: Consumer prices expected to advance at a firm pace

We predict that both overall and core CPI will increase a firm 0.4 percent month-over-month in November, despite a 3.4 percent decline in gasoline prices. The monthly advance indicates minimal slowing for the year-on-year pace. The overall CPI will gradually slow to 7.4 percent from 7.7 percent and the core CPI annual rate will fall modestly to 6.2 percent from 6.3 percent. In the mix, we expect core services prices to remain near their 40-year high annual rate of 6.7 percent, while core goods prices should continue to decelerate from the 5.1 percent rate posted in October.

December 14: FOMC expected to dial back at their December meeting

Federal Reserve officials have widely telegraphed that the size of the rate hike at the December 14 policy meeting will be dialed back to 50bps after raising the fed funds rate by 75bps at each of the prior four policy meetings. This would lift the fed funds target range to 4.25 – 4.5 percent, further within what officials believe is a restrictive range. (see our full report to learn more)

December 15: Retail sales projected to pull back in November

Due to the 3.4 percent decline in gasoline prices and the large 6.1 percent drop in auto sales heavily weighing on the headline reading, retail sales likely fell 0.4 percent overall. Excluding auto sales, we estimate that sales were flat. Despite the weak monthly reading, consumer spending is still on course to rise over 3 percent (annualized) in the fourth quarter lifting GDP growth slightly above 3 percent.

December 15: Industrial production to post modest increase

Total industrial production likely increases just 0.1 percent in November, following a 0.1 percent decline in October, boosting the capacity utilization rate to 79.9 percent — a high rate for utilization. However, due to the headwinds from slower global economic activity and reduced domestic order books, the manufacturing sector is cooling. We have seen high inventory levels at the wholesale and retail sectors relative to sales to weight on production activity.

11/21 Weekly Economic Review and Outlook


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