Recovery on track but slows in November, U.S. data shine

By Rodrigo Campos and Jonathan Cable

NEW YORK/LONDON (Reuters) - Service sector activity expanded around the world in November, albeit at a slower rate, while strong U.S. data housing and jobs figures brightened the outlook for growth, data showed on Wednesday.

Sales of new U.S. single-family homes recorded their biggest increase in more than three decades in October, and private job creation rose by the most in a year last month. The U.S. services sector expanded, though the pace of growth slowed last month with employment and business activity expanding at lower rates.

The initial U.S. market reaction to the strong jobs data reflected concern over a possible reduction in asset purchases from the Federal Reserve, a stimulus program that has boosted equity prices and has kept a lid on Treasury yields.

The upbeat housing data turned the stock market around later in the session, and Wall Street shaved its initial losses.

"In the short term the market is still worried about the most inevitable thing in our lifetime, and that is tapering," said Mike Serio, regional chief investment officer at Wells Fargo Private Bank in Denver.

"However, this (jobs) number, we don't want to get too excited about it, but it truly was a pretty darn good number."

Private employers added 215,000 new jobs to their payrolls last month, the ADP National Employment Report showed, beating economists' expectations for a gain of 173,000 jobs. October's gain was revised to 184,000 from 130,000.

Financial data firm Markit said its U.S. composite Purchasing Managers Index (PMI) - a weighted average of its manufacturing and services indexes - rose to 56.2 last month from 49.6 in October, while The Institute for Supply Management said its services index fell to 53.9 last month from 55.4 in October.

U.S. data on services sector growth and overall private sector activity followed numbers out of Europe and China that pointed to steady growth in those regions in November.

Separate data showed U.S. exports hitting a record high in October

"This is an encouraging sign for both U.S. manufacturing growth and the state of global demand," said John Ryding, chief economist at RDQ Economics in New York.

"There is marked acceleration in the imports of capital goods, which may signal a brighter picture for capital spending," he said.

EUROPE GROWTH DISPARITY

A tepid expansion in the euro zone masked a growing disparity among its key members last month.

A buoyant Germany was not enough to stop the 17-nation euro zone's private sector from losing momentum last month, as a downturn in France - the bloc's second biggest economy - and a continued recession in Italy weighed on the region's pace of growth.

Britain, which does not use the euro, also saw its rate of growth slow, but November's figure was still solid enough to provide a strong economic backdrop for a twice-yearly government budget update due later this week.

"It's steady as she goes, but that's not a bad thing. We can look forward to 2014 with a lot more optimism than at any time in the past several years because many of the shoes that we were waiting to drop haven't," said Peter Dixon at Commerzbank. "It could be better but it could be a lot worse."

Markit's November Eurozone Composite Purchasing Managers' Index (PMI), which monitors activity at thousands of firms across both the services and manufacturing industries, slipped to 51.7 from 51.9 in October.

That did, however, mark an improvement on an initial reading of 51.5 for November and was the fifth straight month above the 50 mark that divides growth from contraction.

The euro zone services output price index also showed inflation pressures easing, dropping to 47.9 from 48.5.

"Although we expect the ECB to keep its remaining monetary powder dry tomorrow, President Mario Draghi is likely to reaffirm the ECB's easing bias, for example, by reiterating that the region may experience a prolonged period of low inflation," said Martin van Vliet, an economist at ING.

Britain's services PMI fell to a still very strong 60.0, its fifth highest reading since December 2006 - and all of the better ones have been since June this year.

In a further indication of strength, China's HSBC/Markit services PMI stood little changed at 52.5 in November, although a moderation of new business and prices-charged growth suggests the underlying momentum has started to soften.

Beijing has embarked on a sweeping restructuring drive and world's second biggest economy has regained some momentum since mid-year after a protracted slowdown.

Any positive news will reinforce the government's hand as it pushes ahead with an ambitious agenda of reshaping the economy to boost domestic consumption at the expense of the traditional drivers of exports and investment.

(Additional reporting by Chuck Mikolajczak in New York, Jonathan Standing in Beijing and Christina Fincher in London; Editing by Ross Finley, Jeremy Gaunt and Meredith Mazzilli)