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Services sector growth slows as orders plunge

October 5, 2015

Growth in the U.S. services sector slowed in September as sales fell and new orders plunged, evidence that stock market volatility may have hit consumer confidence and limited spending.

The Institute for Supply Management said Monday that its services index fell to 56.9 last month from 59 in August, which was the second-highest reading in a decade. Any reading above 50 signals expansion.

A measure of sales fell to 60.2, still a healthy reading, from 63.9. A gauge of new orders, however, dropped nearly 7 points, to 56.7. That suggests sales growth may continue to cool in the coming months.

The survey still points to solid sales and growth for services firms, including retailers, hotels, banks and other financial services companies. More than 8 million Americans have found jobs in the past three years, lifting their ability to spend on restaurant meals, clothes and vacations. That pushed up the ISM services index in July and August to the highest levels since 2005.

Some companies that responded to the survey, however, said that the stock market's recent declines had begun to affect consumers.

"This is still a very high reading, despite the bigger-than-expected decline, which likely reflects a knee-jerk reaction to the drop in stock prices," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

The ISM is a trade group of purchasing managers. Its services survey covers businesses that employ 90 percent of workers, including construction firms, health care and education.

While U.S. consumers have been healthy, weak economies overseas and the strong dollar have hammered U.S. exports of manufactured goods. Factory growth stumbled and the Institute's manufacturing index has been weak all year. It dropped to just 50.2 in September, the ISM said last week.

There are other signs the global growth slowdown is taking a toll on the U.S. economy. Hiring slowed sharply in August and September and employers added an average of just 167,000 jobs a month in the July-September period. That's down from an average of 231,000 in the previous three months.

The unemployment rate stayed at 5.1 percent.

Much of the weakness in the jobs report was concentrated outside the service sector. Manufacturers shed jobs for the second straight month, and mining, which includes oil and gas drilling, cut 10,000 jobs.

Services firms mostly did better. Retailers added nearly 24,000 jobs, and hotels and restaurants hired at a healthy clip. But there were some weak spots. Financial services employment didn't change, and education and health care hiring fell to half its recent pace.

Sharply lower exports will likely slow growth in the July-September quarter to as low as a 1.5-percent annual pace, economists expect. That would be down from a 3.9-percent rate in the second quarter.

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