By Xavier Fontdegloria

U.S. service-sector activity unexpectedly gained momentum in November as production quickened and demand continued to grow at a strong pace, in a sign consumers continued to spend despite high inflation and rapidly rising interest rates.

The Institute for Supply Management said Monday that its index of services activity rose to 56.5 in November from 54.4 in October, rebounding to September's level and topping economists' forecasts of 53.7 in a poll carried out by The Wall Street Journal.

The index, which is based on a survey to services providers across the U.S., suggests growth in the sector accelerated in November as it came in further above the 50 threshold which separates expansion from contraction.

On Thursday, data from a similar survey for the manufacturing sector showed factory activity contracted for the first time since the Covid-19 pandemic brought the economy to a near halt in spring 2020.

"Conditions have held up a bit better for the services side of the economy as households continue to chip away at some pent-up demand for in-person services, but weaker growth prospects are weighing on activity," economists at Wells Fargo said in a note ahead of the release.

In November, services sector activity was driven by quickening business activity and employment, said Anthony Nieves, chair of the ISM Services Business Survey Committee. "The sector had an uptick in growth after pulling back in the previous two months," he said.

The business activity index increased to 64.7 in November from 55.7 in October, with all industries reporting an increase in business in November except for finance and insurance.

The new orders index decreased to 56.0 from 56.5, but continued to suggest orders are increasing and resilient demand.

The employment index rose to 51.5 from 49.1, in a sign that on average firms added jobs over the month.

"A new fiscal period and the holiday season have contributed to stronger business activity and increased employment," Mr. Nieves said.

The supplier deliveries index fell to 53.8 from 56.2, pointing to easing supply constraints. "Increased capacity and shorter lead times have resulted in a continued improvement in supply chain and logistics performance," Mr. Nieves said.

Inflation pressures persisted despite easing supply chains. The prices index was broadly unchanged at 70.0, pointing to still elevated price increases.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

December 05, 2022 10:40 ET (15:40 GMT)