ISM: Service Sector Growth Slowed in September

The Institute for Supply Management’s index of non-manufacturing businesses declined to 53 in September, down from 53.3 in August. While the index still demonstrates sector growth for the 22nd consecutive month, with a reading above 50 signaling expansion, the rate of growth in the services sector did slow. However, economists had expected the index to decline to 52.8. The index averaged 56.1 in the five years leading up to December 2007.

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The fact that non-manufacturing industries account for roughly 90% of the economy means any small decrease in activity is likely to have a negative impact on employment. The Employment Index decreased 2.9 percentage points to 48.7%, indicating contraction in employment after 12 consecutive months of growth.

The Prices Index also declined, falling 2.3 percentage points to 61.9%, indicating that prices increased at a slower rate in September than in August. Fortunately, the ISM New-Orders Index grew, climbing 3.7 percentage points to 56.5%.

Nine non-manufacturing industries reported growth last month, including Mining; Management of Companies & Support Services; Utilities; Wholesale Trade; Transportation & Warehousing; Information; Construction; Health Care & Social Assistance; and Retail Trade. Meanwhile, eight non-manufacturing industries reported contraction: Arts, Entertainment & Recreation; Educational Services; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Other Services; Accommodation & Food Services; Public Administration; and Finance & Insurance.

The ISM services survey covers industries ranging from utilities to healthcare to finance. On October 1, the ISM released figures showing that the manufacturing industry had not only expanded in September for its 26th consecutive month, but at a faster rate than in August.

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An ADP report released earlier today showed that the private sector added 91,000 jobs last month, compared to 89,000 in August. However, private-sector growth in August was offset by job cuts by state and local governments, and according to the U.S. Labor Department, the economy added zero net jobs in August. The Labor Department will release its September employment report, which includes both public- and private-sector employment figures, on October 7.