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US service economy expands at slower pace in September: ISM

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US service economy expands at slower pace in September: ISM

America’s service economy failed to meet growth expectations in September, as overall business conditions slowed toward the end of the third quarter.

In total, 11 of the US’ 15 service industries reported growth, helping to keep the monthly PMI figure above 50, according to the Institute for Supply Management. The reading of 54.4 represents a drop of more than 4 percentage points over the previous month. Although the markets were expecting a drop in service activity, the fall was much steeper than expected. According to Bloomberg, the median estimate from economists called for a drop of 1.2 percentage points.

Business activity increased following summer vacations, but several postponements were also present, according to a manager from the professional, scientific and technical services industry. “Clients are unsure about the economy and business costs,” they would later add. According to a retail trade manager, “Business has leveled off,” with very little in the way of new growth opportunities. Overall, business activity fell 7.1 percentage points over the previous month. New orders grew for a 50th consecutive month.

The report came just two days after ISM reported robust growth in the manufacturing industry on the strength of new orders, which helped spur employment growth. Manufacturing activity expanded for a fourth consecutive month in September, the report showed, with 11 of the 18 manufacturing industries reporting gains.

Like manufacturing, the service economy also registered employment growth in September, albeit at a much slower pace than the previous month. The Non-Manufacturing Employment Index dropped 4.3 percentage points to 52.7, ISM concluded. Retail trade, mining, and management of companies and support services registered the biggest employment growth last month.

The September data signify the US economy may be growing at a slower pace than previously expected, or that manufacturing and construction activity will play a bigger role in the nation’s recovery than the service economy. A prolonged government shutdown that lasts for several weeks could potentially trim the nation’s GDP growth during the fourth quarter.

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