U.S. Service-Industry Expansion Cools From Near-Record Pace

(Bloomberg) -- A gauge of U.S. service industries fell by less than forecast in October from a near-record level, suggesting the economy’s momentum is holding up this quarter, an Institute for Supply Management survey showed Monday.

Highlights of ISM Non-Manufacturing (October)

  • Non-manufacturing index declined to 60.3 (est. 59) from 61.6; readings above 50 indicate expansion
  • Measure of business activity slipped to 62.5 from a 14-year high of 65.2 the prior month
  • Employment gauge declined to 59.7 from a record 62.4

Key Takeaways

The index -- which covers sectors representing about 90 percent of the economy -- indicates growth is on track to remain solid in the fourth quarter after posting the best back-to-back periods since 2014, and also helps explain Friday’s strong employment report. The business activity index, one of four components of the main gauge, slipped while remaining near the prior reading that was the second-highest in two decades of data.

U.S. Service-Industry Expansion Cools From Near-Record Pace

While companies have flagged concerns about the ongoing trade war and cited higher prices for supplies amid tariffs, the prices-paid index declined to a four-month low. The measure of new orders was little changed from the prior month, while exports held at the best level since April. The gauge of order backlogs decreased.

Still, the trade war may be taking a toll on some companies, with an imports gauge falling to the lowest since February. A measure of supplier deliveries rose, signaling that industries continue to face supply bottlenecks when trying to meet strong demand.

The ISM’s services index contrasts somewhat with the latest reading on its factory gauge, which fell by more than forecast in October to a six-month low. That report showed declines in gauges of orders, employment and exports.

Official’s Views

“The non-manufacturing sector has again reflected strong growth despite a slight cooling off,” Anthony Nieves, chair of ISM’s non-manufacturing survey committee, said in a statement. “There are continued concerns about capacity, logistics and tariffs. The respondents are positive about current business conditions and the economy.”

What Our Economists Say

Measures of demand were robust, signaling that activity in the sector will remain vigorous as the holiday season approaches.

Trade policy has been the bogeyman in recent manufacturing and non-manufacturing surveys. While survey comments raised concerns about the impact of trade policy and uncertainty on business activity, the strong reading is a sign that, so far, tariffs are not impairing demand.

-- Tim Mahedy and Carl Riccadonna, Bloomberg Economics

Read the full note here.