Private survey: Growth of US services sector surged in Oct.

Staff Writer
Columbus CEO

WASHINGTON (AP) — U.S. services companies grew at an accelerated pace in October as business activity, new orders and employment all strengthened, suggesting that the economy is building momentum from consumer demand in the final months of 2015.

The Institute for Supply Management said Wednesday that its services index climbed to 59.1 last month from 56.9 in September. Any reading above 50 signals expansion.

The figures raise the prospect that consumer spending will anchor growth during the October-December quarter at a time when manufacturing, hurt by global economic turbulence, has slowed. The gap between how the ISM measures services and manufacturing has reached its widest point in roughly 14 years.

The stronger dollar has hamstrung the exports of U.S. goods by making them more expensive abroad. Lower oil prices have also led energy firms to halt drilling activity. These setbacks led the ISM's manufacturing index to fall to 50.1 last month, meaning that factory activity is barely improving.

The dual ISM reports highlight "the two-speed economy where manufacturing continues to run at an unimpressive pace while the services side of the economy shows signs of strength," said Bricklin Dwyer, a senior economist at BNP Paribas.

New orders at services firms rose to a reading of 62, up from 56.7 in September. The business activity measure rose to 63. Employment advanced to 59.2. These gains indicate that services firms anticipate rising sales.

"We're entering the fourth quarter on a very high note," said Anthony Nieves, chair of the ISM's non-manufacturing business survey committee.

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

The improvement in the services sector comes as the economy showed signs of flagging during the third quarter. The pace of hiring has fallen, the stock market has become choppy, businesses are preparing for weaker consumer demand and there are mixed signals from the housing market.

In addition, China's efforts to evolve into a consumer-driven economy has curbed its growth. And Europe is just clawing its way back to health more than seven years after the global financial meltdown.

Still, many economists expect the U.S. economy to strengthen in the end of the year. Employers added just 142,000 jobs in September and 136,000 in August — steep drop-offs from monthly gains that were averaging more than 200,000 for much of the year. Yet analysts foresee a rebound in the October employment report out Friday with the addition of 185,000 jobs.

Similarly, the economy grew at an annualized pace of only 1.5 percent during the July-September quarter, down from 3.9 percent in the prior quarter.

Economists are projecting that gross domestic product growth will average 2.5 percent in the final three months of 2015, suggesting that businesses will stop cutting back on their inventories in response to consumer demand.