Service Firms Rebound to Best Expansion in 11 Months
American service companies expanded in September at the fastest rate in almost a year, returning the economy’s biggest segment to a steady growth path after a slump in the prior month.
The Institute for Supply Management’s non-manufacturing index jumped to 57.1, the highest since October 2015 and exceeding all forecasts in a Bloomberg News survey, the Tempe, Arizona-based group’s data showed Oct. 5. The August reading of 51.4 was the lowest in more than six years.
Measures of employment and orders led the advance, which signals that businesses that make up almost 90% of the economy see enough demand to keep expanding. The group’s factory survey released Oct. 3 showed manufacturers also made up some ground last month, suggesting that the slowdown in both ISM measures in August probably overstated softness in the U.S. expansion.
“The consumer continues to put the economy on their back, and they’re spending aggressively,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “The key is going to be housing and the job market, and the housing market continues to move in the right direction and the job market’s doing very, very well.”
The ISM services survey covers an array of industries, including retail, health care, agriculture and construction. Fourteen industries, including farming, retail and support services, expanded in September, while four contracted.
“It’s a rebound from the prior month,” Anthony Nieves, chairman of the ISM non-manufacturing survey, said on a conference call with reporters. “We’ll have to see how it trends out. September has typically been a pivotal month for the non-manufacturing sector, and it bodes well in terms of how we think the year will finish out.”
The Bloomberg survey median called for a reading of 53. The 75 estimates ranged from 50, the break-even line between growth and contraction, to 55. The measure averaged 54.2 this year through August, compared with 57.2 in all of 2015.
The ISM’s measure of services employment advanced to 57.2, the strongest since October 2015, from 50.7. The 6.5-point jump was the biggest monthly gain in records back to 1997 and provides a reassuring sign ahead of the Labor Department’s September payrolls report due Oct. 7.
The ISM new orders gauge climbed to 60 from 51.4 in August, showing the biggest month-to-month jump since April 2009 as demand rebounded from an almost three-year low.
The business activity index, which parallels the ISM’s factory production gauge, also seesawed over the past two months. The measure rose to 60.3 in September, also the highest since October 2015, after 51.8 in August that was the weakest since the start of 2010.
The group’s manufacturing survey earlier this week showed factories expanded at a modest rate in September after unexpectedly shrinking a month earlier and underscoring limited progress for the battered sector. The gauge advanced to 51.5 after the 49.4 reading in August that was the weakest since the start of the year.
