Services Sector Activity Expanded at Slower Pace in September

People wave American flags as they ride through 4th of July Parade in Alameda, California on Monday, July 4, 2016. / AFP / GABRIELLE LURIE (Photo credit should read GABRIELLE LURIE/AFP/Getty Images)
GABRIELLE LURIE/AFP/Getty Images

The U.S. services sector expanded at a slower pace than expected in September, a sign that economic growth cooled at the end of the third quarter.

The Institute for Supply Management’s nonmanufacturing purchasing managers index dropped to 52.6 in September from 56.4 in August, below economists’ expectations for a higher reading of 55.5. That is worse reading of the Trump presidency.

The index fell in June and July but had rebounded in August. The September data, while not suggesting a looming recession, does indicate that growth is slowing in the U.S. economy. It follows an earlier report from ISM indicating activity contracted in the manufacturing sector.

Readings above 50 indicate activity is expanding, while those below 50 are a sign of contraction.

All the components of the index remain in positive territory apart from imports. The most closely watched components–production, employment, and new orders–showed ongoing expansion, albeit at a slower pace than earlier. New export orders for services actually improved for the month.

The worse-than-expected manufacturing index released on Tuesday has sparked fears that the U.S. economy could be slowing more than expected, dragged down by sluggish growth around the world. Thursday’s report on the non-manufacturing segment of the economy will not fan the flames of recession fears but neither does it put out the blaze.

All eyes will now turn to Friday’s report on nonfarm employment for indications of whether the labor market’s strength, which is supporting the strong consumer spending that has become critical to the buoyancy of the U.S. economy, has tapered off.

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