The US services sector experienced a deceleration for the second month in a row in October, according to the latest report from the Institute for Supply Management (ISM). The non-manufacturing Purchasing Managers’ Index (PMI), a key indicator of activity within the US services sector, dropped to 51.8 in October, down from 53.6 in September. A reading above 50 signifies growth in the services industry, which constitutes more than two-thirds of the US economy.
Economists, whose forecasts were collated by Reuters, had anticipated a slight decline in the PMI to 53.0; however, the actual figure of 51.8 was below expectations. This latest dip follows a trend that has been ongoing since August when the index reached a six-month high. Initially, there was a surge in demand for services as Americans resumed their normal lives after pandemic-related lockdowns. Still, since then, spending has veered towards goods, significantly outpacing expenditures on services in the third quarter.
A breakdown of the data reveals that the measure of new orders received by services businesses experienced some growth, reaching 55.5 last month, up from 51.8 in September, which marked the lowest level since December. On the downside, export orders saw a noticeable decline, likely attributable to the US dollar’s strength against the currencies of its primary trading partners.
Inflation within the services sector has remained stagnant, a matter of significance for the Federal Reserve, which is striving to push inflation towards its 2% target. The prices paid for inputs in the services sector, an important gauge of inflation, dropped slightly from 58.9 in September to 58.6 in October. Some economists view this measure as a reliable predictor of personal consumption expenditures inflation, which the US central bank relies on for its monetary policy decisions.
The employment situation in the services sector also witnessed a dip, with the employment index falling to 50.2 in October, down from 53.4 in September. Though the services sector is still experiencing expansion, this decline in employment, while not severe enough to trigger immediate concern, raises questions about the trajectory of the US economic recovery in the months to come.
The ongoing pandemic, coupled with shifting consumer preferences, has introduced a degree of uncertainty into the services sector’s performance. The decline in services growth may reflect a more challenging economic landscape in the near future.
The ISM’s October report suggests that the US services sector is facing headwinds, as it continues to grapple with evolving consumer behavior and the ongoing impacts of the pandemic. While the economy is still expanding, concerns loom over the potential consequences of the services sector’s slowdown. Economists, policymakers, and market analysts will closely monitor the data in the coming months for a clearer picture of the economic recovery’s resilience in the face of these challenges.
Source: Reuters
