U.S. Business Activity Holds Steady in November, But Private Sector Jobs Decline for First Time in Over Three Years

The data reflects a mixed economic picture, with resilience in some areas but warning signs of weakening labor market conditions that could impact consumer spending and overall growth heading into 2025.

Services Sector Keeps Economy Afloat

The U.S. services sector, which accounts for more than two-thirds of economic activity, showed modest growth in November, helping to stabilize overall business activity. This growth was driven by steady consumer demand for travel, entertainment, healthcare, and financial services, despite high interest rates and persistent inflation.

“While services growth has slowed compared to earlier in the year, it remains the key driver keeping U.S. economic activity from slipping into contraction,” said Chris Williamson, Chief Business Economist at S&P Global.

Key Highlights from the Services Sector:

• Consumer spending remained stable, particularly in leisure, hospitality, and professional services.

• Input costs continued to rise, but businesses managed to pass some costs onto consumers.

• New orders saw modest growth, signaling steady demand.

However, businesses in the sector remain cautious about hiring, given the broader economic uncertainty and tightening corporate budgets.

Manufacturing Sector Faces Prolonged Contraction

While the services sector provided some stability, the manufacturing industry continued to shrink, reflecting weak domestic demand, higher borrowing costs, and sluggish global trade. The survey showed that manufacturers are cutting production, citing slower order flows and excess inventory.

Challenges in the Manufacturing Sector:

• New orders declined, indicating weaker demand from businesses and consumers.

• Exports remained under pressure, impacted by global economic uncertainty and a strong U.S. dollar.

• Higher financing costs due to Federal Reserve interest rate hikes have limited investment in new production.

“The manufacturing sector is struggling with a combination of soft demand, rising costs, and trade headwinds,” Williamson noted. “This is weighing on overall economic sentiment, even as the services sector continues to show resilience.”

Employment Declines for the First Time Since 2021

One of the most significant takeaways from the S&P Global survey is that private-sector employment declined in November—the first drop in over three years. The last time the U.S. economy saw a decrease in private-sector jobs was mid-2021, during the tail end of the pandemic recovery.

Factors Driving the Employment Decline:

• Hiring freezes and layoffs in certain industries, particularly in tech, finance, and manufacturing.

• Companies reducing workforce sizes to cut costs amid economic uncertainty.

• Slower wage growth, which could dampen consumer spending in the coming months.

The labor market had remained surprisingly strong despite Federal Reserve rate hikes, but the latest numbers suggest that higher borrowing costs and declining business confidence may finally be taking a toll.

Economic Outlook: Is a Slowdown Coming?

While the overall economy is not yet in recession territory, the combination of a cooling labor market and weaker business sentiment suggests that growth could slow in the final months of 2024. If employment continues to decline, it could put downward pressure on consumer spending—one of the key drivers of U.S. economic activity.

Economists are now watching closely for:

• December’s employment report to see if job losses accelerate.

• Retail sales data during the holiday season to gauge consumer strength.

• The Federal Reserve’s response, particularly whether it signals potential rate cuts in early 2025.

What This Means for Businesses and Consumers

For businesses, the survey suggests a more cautious approach to hiring and investment heading into 2025. Many companies are likely to focus on cost-cutting and efficiency improvements rather than aggressive expansion.

For consumers, a weakening labor market could lead to slower wage growth and reduced job security, which might impact confidence and spending patterns in the months ahead.

While the U.S. economy has proven resilient throughout 2024, these latest figures indicate that a period of slower growth or even mild recessionary pressures could emerge in the first half of 2025.