US service sector at five-month low in October- ISM survey

WASHINGTON (Reuters) – The U.S. services sector slowed for a second straight month in October, but momentum is likely to pick up in the near term amid an acceleration in growth in new orders.

The Institute for Supply Management (ISM) said on Friday that its non-manufacturing PMI dropped to a five-month low of 51.8 from 53.6 in September. The Services PMI has been declining since August, when it rose to the highest level in six months.

A reading above 50 indicates growth in the services industry, which accounts for more than two-thirds of the economy. Economists polled by Reuters had forecast the index slipping to 53.0.

Demand for services initially surged as Americans resumed normal lives after COVID-19 lockdowns. But momentum has ebbed, with spending swinging back to goods. Spending on goods far outpaced outlays on services in the third quarter.

A measure of new orders received by services businesses increased to 55.5 last month from 51.8 in September, which was the lowest level since December. Export orders slumped, likely reflecting the dollar’s strength against the currencies of the United States’ main trading partners.

Services inflation remained sticky. The services sector is at the heart of the Federal Reserve’s battle to bring inflation down to its 2% target. Services prices are less responsive to interest rate hikes. A measure of prices paid for services businesses for inputs dipped to 58.6 from 58.9 in September.

Some economists view the ISM services prices paid measure as a good predictor of personal consumption expenditures inflation, tracked by the U.S. central bank for monetary policy.

A measure of services sector employment fell to 50.2 from 53.4 in September.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)