Services Sector Expands In September

U.S. service industries continued to grow last month, although not at the same rapid pace from earlier in 2015, according to a closely-watched index. The report on the non-manufacturing sectors by the Institute for Supply Management revealed an index of 56.9 for September, a drop from 59.0 in August and 60.3 in July – the latter the highest figure since the index was started in 2008. While the newest reading shows a slowdown, any number above 50 demonstrates sector expansion. Anthony Nieves, chairman of the ISM survey committee, said the decline could “be attributed to the softening of the stock market and consumer confidence,” in addition to economic turmoil abroad, particularly in China.  

This was the 68th consecutive month that the non-manufacturing services industry expanded. Employment increased by 2.3 percentage points, while new orders declined by 6.7 percentage points. Prices, inventories and production decreased as well last month. Four of the 17 industries tracked by the index reported contraction: mining; arts, entertainment & recreation; retail trade; and other services. Retail hadn’t experienced a decline since February of 2014, a slump attributed to poor winter weather that month.

Despite the month-over-month decline, Nieves feels the services sector is stable and points to the employment figures as an encouraging sign. “I’ve always said as the employment index goes, that’s how this sector goes, because it’s so labor intensive,” he said. “That tells me that in the pipeline perhaps the various companies and industries that make up this sector are thinking, ‘Hey we still have stuff coming down the road, so we’re hiring here’.”

ISM’s September manufacturing index also declined to 50.2 from 51.1 the previous month. Unlike the services sector, the manufacturing sector was more affected by the strong dollar and overseas economic uncertainty, analysts say.