U.S. Service Sector Sees Modest Slowdown in September: Economic Insights

An analysis of the U.S. service sector's performance in September, indicating a steady growth trajectory. Explore key economic indicators and trends.

Oct 4, 2023 - 10:23
Oct 4, 2023 - 10:23
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U.S. Service Sector Sees Modest Slowdown in September: Economic Insights
U.S. Service Sector Sees Modest Slowdown in September: Economic Insights

In September, the U.S. service sector experienced a slight deceleration, with new orders reaching a nine-month low. Nevertheless, this pace aligns with anticipated robust economic expansion in the third quarter.

According to the Institute for Supply Management (ISM), the non-manufacturing Purchasing Managers' Index (PMI) slipped from 54.5 in August to 53.6 last month. A reading above 50 signifies growth in the services sector, which constitutes over two-thirds of the economy. This figure met economists' projections.

The demand for services is being bolstered by a shift in spending patterns away from goods, influenced by higher interest rates. On Monday, the ISM reported that the manufacturing PMI contracted for the 11th consecutive month in September, though the rate of decline notably slowed.

Estimates for third-quarter growth range as high as an annualized rate of 4.9%. In the April-June quarter, the economy grew at a 2.1% pace.

The measure of new orders received by services businesses decreased to 51.8 last month, marking the lowest level since December, down from 57.5 in August. Despite the slowdown in new orders, order backlogs improved, and exports saw an uptick. Notably, services inflation remained elevated.

The services sector plays a crucial role in the Federal Reserve's efforts to bring inflation down to its 2% target. Prices in the services sector tend to be less responsive to rate hikes.

A gauge of prices paid by services businesses for inputs remained unchanged at 58.9. Some economists consider the ISM services prices paid measure as an effective predictor of personal consumption expenditures (PCE) inflation, which the Fed monitors closely for monetary policy decisions. In August, the annual increase in the PCE price index, excluding food and energy, fell below 4% for the first time in over two years.

Furthermore, a measure of employment in the services sector dipped to 53.4 from 54.7 in August.

Also Read: Surge in US Job Openings Signals Potential Interest Rate Hike

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