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US service economy maintains growth in October: ISM

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US service economy maintains growth in October: ISM

The United States’ service economy accelerated at a faster pace than expected in October, as firms ramped up despite the 16-day government shutdown. The Institute for Supply Management’s non-manufacturing index rose one percentage point to 55.4, exceeding economists’ forecasts.

ISM releases the most closely watched US PMI data. A reading above 50.0 signals growth in the non-manufacturing sectors, whereas a reading below that level signals contraction.

The service economy grew for a 46th consecutive month, led by an increase in new business activity. The business activity index rose for the 51st consecutive month. However, new orders cooled due to economic uncertainty surrounding the budget impasse. The employment sub-index grew for a 15th consecutive month, as firms increased their hiring. In total, ten of the 18 non-manufacturing industries reported growth last month, led by management and support services, other services and retail trade. Arts and entertainment experienced the biggest contraction in October, followed by agriculture and transportation/warehousing.

“Signs of improvement and stability are encouraging,” said a retail trade manager; however, “the political environment and the cost of ObamaCare are causing a retrenching as costs escalate and margins shrink.” Another manager from food and accommodation services said escalating consumer fears over the government shutdown harmed business, and weighed heavily on the broader economy.

Although down from the eight-year high in August, the service economy registered notable gins in October, as the political standoff was expected to have a much bigger impact on growth. Earlier in the week ISM reported the manufacturing sector accelerated at the fastest pace in 2 ½ years in October. The data show the US economy continues to be resilient in the face of political and economic uncertainty. However, if Congress is unable to reach a resolution to the budget ceiling before the new-year, lawmakers could be headed for another round of confrontations ahead of February 7, 2014, when the current debt cushion expires.

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