In October, the US services sector experienced its second consecutive month of deceleration, as reported by the Institute for Supply Management (ISM). The non-manufacturing Purchasing Managers’ Index (PMI), a key metric for gauging activity in the services industry, declined to 51.8, down from September’s 53.6. An index value above 50 indicates growth in the sector, which constitutes over two-thirds of the US economy. Contrary to the expectations of economists surveyed by Reuters, who had anticipated a slip to 53.0, the index fell below projections.
This trend of decline in the Services PMI has been ongoing since August, when it reached its highest point in half a year. Initially, there was a surge in demand for services as Americans resumed normal activities following COVID-19 lockdowns. However, spending patterns have since shifted back towards goods, with outlays on goods surpassing those on services in the third quarter.
A notable development in the data is the rise in the measure of new orders received by services businesses, reaching 55.5 last month, up from September’s 51.8, the lowest level recorded since December. On the flip side, export orders experienced a notable downturn, likely reflecting the robust position of the US dollar against the currencies of its major trading partners. Meanwhile, services inflation remained stagnant.
The services sector holds a pivotal role in the Federal Reserve’s efforts to steer inflation down to its targeted 2%. Prices paid for inputs in the services sector, a crucial measure of its inflationary pressure, declined to 58.6 from 58.9 in September. Some economists consider this metric to be a reliable predictor of personal consumption expenditures inflation, a factor influencing the US central bank’s monetary policy determinations.
In terms of employment within the US services sector, there was a slight dip, with the relevant metric falling from 53.4 in September to 50.2 in October. While the sector continues to exhibit expansion, the decline is not yet severe enough to warrant immediate concern. However, as the United States grapples with the persisting pandemic, the ensuing months may potentially tell a different story, potentially impacting the trajectory of the country’s economic recovery.
Source: Reuters
