Growth cooling for U.S. services

Carwash employees wipe down a vehicle in the Pacoimia section of Los Angeles in June. The Institute for Supply Management’s nonmanufacturing index, covering a number of industries that make up nearly 90 percent of the economy, fell in September to 56.9.
Carwash employees wipe down a vehicle in the Pacoimia section of Los Angeles in June. The Institute for Supply Management’s nonmanufacturing index, covering a number of industries that make up nearly 90 percent of the economy, fell in September to 56.9.

The pace of growth in U.S. services industries cooled last month from the best readings in a decade, a sign consumers may be taking demand down to a more sustainable level in the face of global weakness.

The Institute for Supply Management's nonmanufacturing index declined to 56.9 in September from 59 the prior month, the Tempe, Ariz.-based group said Monday. A gauge above 50 denotes expansion, and the median estimate in a Bloomberg survey of economists called for a reading of 57.5. Figures in July and August were the strongest since 2005.

Demand for services, which make up the lion's share of the economy, has held up in the face of financial-market volatility and a slowdown in international markets as the consumer has remained willing to spend. However, with payroll growth slowing and wages still stagnant, households may become more cautious.

"There are parts of nonmanufacturing that are linked to manufacturing," so some decline in the services gauge is to be expected, Jim O'Sullivan, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, N.Y., said before the report. However, "the basic story that services is much stronger than manufacturing will continue to be true."

Estimates in the Bloomberg survey of 71 economists ranged from 56 to 60.

The new orders gauge dropped to 56.7 in September, the lowest in seven months, from 63.4 the prior month. The 6.7 point plunge was the largest since November 2008. The measure of services employment picked up to 58.3 from 56.

The business activity index, which parallels the ISM's factory production gauge, declined to 60.2 last month from 63.9 in August, while a measure of prices paid decreased to 48.4, indicating costs were falling, from 50.8.

The ISM services survey covers an array of industries, from retailing to health care, that make up almost 90 percent of the economy. It also factors in agriculture and construction.

The group's manufacturing index last week fell to its weakest level in more than two years, declining to 50.2 in September from 51.1 the month before. The report showed a broader swath of industries suffered from the effects of a strong dollar and faltering overseas markets, with the slowdown paced by weakening orders and employment.

The jobs report Friday corroborated that performance, showing factory payrolls posted their biggest back-to-back decline since 2010.

Even service industries, which are typically more shielded from global weakness, shifted into a lower gear. Payroll growth there has slowed for four straight months, the longest such streak since 2001.

Wage growth remained disappointing, with average hourly earnings falling a penny to $25.09 in September from the month before. From the year before, they were up 2.2 percent, within the same narrow channel they've tracked since the recovery started in June 2009.

The deceleration in job growth may prompt consumers to proceed with caution when it comes to spending, which has been supportive of U.S. growth this year. Data last week showed household spending climbed by 0.4 percent in August to match a July advance that was larger than previously reported.

Information for this article was contributed by Kristy Scheuble of Bloomberg News.

Business on 10/06/2015

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