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US service sector growth slows in October at 56.6%: survey

·2-min read
The US service sector's growth slowed in October even as it continued to bounce back from the coronavirus downturn
The US service sector's growth slowed in October even as it continued to bounce back from the coronavirus downturn

The US services sector continued to grow in October but at a slower-than-expected rate compared to the prior month as the economy recovers from the coronavirus pandemic, according to an industry survey released Wednesday.

The Institute for Supply Management's (ISM) services index slipped to 56.6 percent last month, reflecting softening in the dominant sector of the world's largest economy just before voters headed to the polls on Tuesday to vote in the presidential election.

Services contracted sharply as the pandemic struck but has gained ground in recent months as businesses were able to reopen and boosted by the massive rescue package approved by Congress in March.

October was its fifth consecutive month of growth, but the pace slowed compared to the September when the index hit 57.8 percent. Figures above 50 percent indicate expansion.

All industries except for two reported growth, and inventories and imports both began growing again after contracting last month. 

"Respondents' comments are cautiously optimistic about business conditions and the economy," ISM survey chair Anthony Nieves said. "There is a degree of uncertainty due to the pandemic, capacity constraints, logistics and the elections."

However, the data showed weakness emerging in important areas like employment, which declined last month to 50.1 percent, on the brink of lapsing back into contraction.

Business activity also dialed back slightly to a still-strong 61.2 percent, while new orders also slowed, according to the survey.

One respondent noted a "slight slowdown compared to last month, but still strong sales."

- Risk of new downturn -

Whether or not the sector can weather rising coronavirus cases across the United States and the lack of new fiscal stimulus from Congress remains to be seen.

Services was particularly hard-hit by business shutdowns to stop Covid-19 beginning in March, but the damage was mitigated by the aid package that included of extra payments to the unemployed and a program of loans and grants to keep small businesses afloat.

However, Washington policymakers were unable to agree on extending those now-expired programs, and Oren Klachkin of Oxford Economics warned of a bumpy ride ahead for the service sector without new aid.

"Certain services activities -- namely those tied to consumer discretionary spending -- will stay under extreme pressure until a health solution is broadly implemented," he wrote in analysis. 

"Risks of a renewed downturn are running high as the virus rages on and additional fiscal support uncertain (in the) near term, especially with the election outcome still undecided."

The prices index jumped to 63.9 percent while supplier deliveries rose slightly to 56.2 percent, indicating slower deliveries that auger an increase in customer demand, according to the report.

cs/hs