(Bloomberg) -- The US service sector expanded at a faster pace in November as business activity and employment picked up.

The Institute for Supply Management’s overall gauge of services rose 0.9 points to 52.7 last month, data out Tuesday showed. The index has remained above the 50 level that indicates expansion for all of this year, and has only dipped into contraction once since the onset of the pandemic.

The business activity index, which parallels ISM’s factory output gauge, climbed in November after posting the biggest drop this year in the prior month. A gauge of orders placed with service providers — a proxy of future demand — was unchanged at 55.5.

While consumer spending — the backbone of the US economy — has continuously surprised economists, in large part due to Americans’ incessant demand for services, forecasters don’t expect that level of strength to last much longer as employers scale back hiring and wage gains recede.

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The government’s monthly jobs report due Friday is forecast to show a labor market that looks increasingly like the pre-pandemic one: with milder but still-healthy growth. The ISM services measure of employment edged up for the first time in three months in November.

A separate report Tuesday showed US job openings pulled back in October to the lowest level since March 2021, underscoring the gradual cooling in the labor market that the Federal Reserve would like to see.

What Bloomberg Economics Says...

“November’s ISM Services print shows the services sector is still expanding, but provides little indication that will continue for long — supporting our view that real economic activity will likely slow in coming months.”

— Estelle Ou. To read the full note, click here

Other headwinds, including soaring borrowing costs, lingering price pressures and the resumption of student-loan payments are all expected to take a toll on consumer demand going forward.

A metric of prices paid eased to a four-month low, indicating that costs are still rising but at a slower pace.

Fifteen industries reported growth last month, led by agriculture and forestry. The three industries reporting a decrease in the month were information, mining and professional, scientific & technical services.

Select ISM Industry Comments

“Restaurant sales and traffic trends are consistent with the previous month and at our annual seasonal lows — should pick up again in December. We continue to trend positive to pre-pandemic and last year.” — Accommodation & Food Services

“Opportunities across the construction industry remains strong. The labor market for skilled trades workers is tight.”  — Construction

“There are fewer new projects in comparison to last month and November 2022. Customers are not requesting quotes for new services.”  — Information

“Customers are conservative in spending, so competition to maintain market share is tight.” — Management of Companies & Support Services

The gauge of inventories at service providers jumped by the most since May, coinciding with a smaller backlog of orders. An index of sentiment about the level of unsold goods surged to the highest level since the onset of the pandemic, which risks a pullback in orders placed with manufacturers or other service providers in coming months.

The ISM services gauge has painted a much more optimistic picture than the group’s manufacturing index. The report out last week showed US factory activity shrank for a 13th straight month in November, extending the worst streak in two decades.

(Adds graphic, Bloomberg Economics comment and details from report)

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