US Services Activity Moderates as Orders Growth Slides

Growth in the US service sector moderated in September as a measure of new orders slid to the lowest level this year.

(Bloomberg) — Growth in the US service sector moderated in September as a measure of new orders slid to the lowest level this year.

The Institute for Supply Management’s overall gauge of services fell by nearly a point to 53.6, data out Wednesday showed. Readings above 50 indicate expansion, and the September figure was in line with the median estimate in a Bloomberg survey of economists.

While growth in business activity quickened to a three-month high, an almost six-point drop in orders suggests demand for services may be starting to weaken. In August, the measure of bookings reached a six-month high.

The gauge of business activity index, which parallels the ISM factory production index, rose 1.5 points to 58.8. The services sector has been a bright spot for the economy as Americans rotate their spending from goods back to experiences.

About 34% of respondents reported higher business activity in September, the biggest share since April 2022.

“The majority of respondents remain positive about business conditions; moreover, some respondents indicated concern about potential headwinds,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.

Still, some consumers are already growing more discerning in their services spending amid higher financing costs, stubborn inflation and smaller wage gains. New challenges, including the resumption of student-loan payments this month, also pose a risk to discretionary purchases of services as well as goods.

Thirteen services industries reported growth in September, including real estate, retail trade and mining, the ISM report showed. Five reported a decline, led by agriculture, entertainment and recreation, and accommodation and food services.

Select ISM Industry Comments

“Conditions remain favorable for mechanical contractors. New construction projects continue to launch. We are still seeing opportunities for cost reductions across many commodities. Inventory levels on finished goods remain strong.” — Construction

“I think the outlook of our company and the industry is a slow but steady improvement — from a plethora of unknowns to a daily sense of being able to manage the rigors of the supply chain.” — Health Care

“Bank and leasing company volume seems to be falling as credit tightens, thus causing a slowdown in related services industries. Bankruptcy work is picking up.” — Management of Companies

“The fourth quarter is looking better than forecast, which is good because the third quarter of 2023 was below plan. Our customers are cautiously optimistic for a solid domestic performance, despite troubles in select foreign markets” — Professional, Scientific & Technical Services

“Business is ramping up in preparation for the holiday season. Our supply chain is strong.” — Retail Trade

“Higher level of orders in past month. Business activity is stabilizing to last year’s numbers.” — Transportation & Warehousing

“Suppliers’ lead times are approaching ‘normal.’ Electronic equipment containing chips continues to be on allocation.” — Wholesale Trade

The report also showed more moderate growth in hiring last month. Government figures due Friday will provide further clues into the direction the job market. Economists say employers probably added jobs at a healthy pace in September.

Prices paid for inputs continued to rise, matching the fastest pace since April. A metric of supplier deliveries, meantime, rose above 50 for the first time since November, indicating delivery times lengthened.

The ISM measure of inventories at service providers moderated, and a gauge of sentiment about inventory levels also fell to a three-month low.

–With assistance from Jordan Yadoo.

(Adds share of industries reporting higher activity)

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