Services Economy and Employment Measures Show Slower Growth in October

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The United States is now a post-manufacturing economy. We might not just be a nation of white-collar jobs and restaurant workers, but we are definitely now a services focused economy. Now we have two readings on the services economy that are weaker to less positive ahead of Friday’s key payrolls report.

The PMI Services Index rose to 54.8 in October from a reading of 52.3 in September. This is actually an unchanged reading from the previous flash index reading, so that makes it a flat number even if there was a gain.

What needs to be considered here now is the more widely followed ISM Non-Manufacturing Index for October. This came in at 54.8 for October, and like the PMI reading above is above the breakeven line. The good news stops there: the consensus estimate from Bloomberg was 56.1 for October, and the September reading was 57.1.

It also gets a bit worse from there on the October ISM Non-Manufacturing reading as the Econoday range on Bloomberg was 55.0 to 57.4. That implies that this net reading was worse than every single economist was expecting.

Ahead of Friday’s payrolls and unemployment report (also for October), the employment component of this ISM report was down by 4.1 points to a 53.1 in October. That figure is still positive but it implies a much slower growth rate for employment indicators.

New orders were solid at 57.7 in October, but while they were above the net reading they were still down from September’s 60.6 reading.

Business activity was the same reading at a strong 57.7. But like the new orders component, the net business activity was slower growth than what was seen in September.

Price inflation is persisting here. The Prices Index increased by 2.6 percentage points from September, rising from 54.0 to 56.6 in October. What should stand out here is that prices have now increased for the seventh consecutive month.

ISM’s report said:

According to the NMI, 13 non-manufacturing industries reported growth in October. There has been a slight cooling-off in the non-manufacturing sector month-over-month, indicating that last month’s increases weren’t sustainable. Respondent’s comments remain mostly positive about business conditions and the overall economy. Several comments were made about the uncertainty on the impact of the upcoming U.S. presidential election.