U.S. business activity saw a slight expansion across the services sector in November, PMI showed

U.S. business activity expanded slightly in November, but private sector employment fell for the first time in nearly three-and-a-half years in the fourth quarter, consistent with expectations of an economic slowdown.

S&P Global said on Friday that the US composite purchasing managers’ index (PMI), which tracks the manufacturing and services sectors, was unchanged at 50.7 this month as a slight increase in sector activity services offset contraction in the industrial sector. A reading above 50 indicates expansion of the private sector.

The preliminary manufacturing PMI fell to 49.4 this month from 50.0 in October. The services sector PMI rose to 50.8 from 50.6 in the previous month.

Economists expect overall economic activity to moderate significantly this quarter as the lagged effects of the Federal Reserve’s interest rate hike begin to have a greater impact. From March 2022, the US Federal Reserve has increased its key rate by 525 basis points from the current range of 5.25% to 5.50%.

The economy grew at an annual rate of 4.9% in the third quarter. Growth estimates for the October-December quarter are mostly below the 2% pace.

The new orders sub-index in the composite PMI rose to 50.4 in November, ending three straight monthly declines. The modest increase from October’s reading of 49.0 was mainly driven by the services sector, as factory orders stagnated.

A lack of strong growth in new orders also cut the number of workers at firms, with the employment index falling to 49.7. This was the first contraction since June 2020 and followed a reading of 51.3 in October.

S&P Global cited relatively weak demand conditions and high cost pressures as reasons for the layoffs, which occurred in the manufacturing and services sectors.