Services Sector Growth Moderates In September, Business Optimism Holds Strong

The rhythm of expansion in the U.S. services sector slightly decelerated in September as elevated interest rates and uncertainty related to the risk of a government shutdown weighed on private businesses.

The ISM Services PMI dropped by 0.9 percentage points to 53.6 in September, matching market expectations, and indicating the ninth consecutive month of growth.

The marginal slowdown in the pace of growth for the services sector, which followed a six-month peak in August, was primarily driven by a decline in the employment and new orders subindices.

“There has been a slight pullback in the rate of growth for the services sector, which is attributed to slower rates of growth in the New Orders and Employment indexes. The majority of respondents remain positive about business conditions; moreover, some respondents indicated concern about potential headwinds,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said.

Earlier on Wednesday, Automatic Data Processing Inc. reported that private employers added 89,000 new jobs in September. This figure represented almost a half of the job increase observed in August and it also fell well below the anticipated 153,000 new hires.

The SPDR S&P 500 ETF Trust SPY was flat for the day as of 10:10 a.m. ET after closing at the lowest level in four months on Tuesday.

ISM Services PMI: Key Highlights

• The gauge for the service sector fell to 53.6 percentage points in September, declining from the previous reading of 54.5 in August and matching the projected 53.6.
  
• The subindex for business activity and production increased by 1.5pp to 58.8, indicating the 40th consecutive month of expansion.
  
• Employment fell by 1.3pp to 53.4, while new orders tumbled by 5.7pp to 51.8.
  
• New export orders rose by 1.6pp to 63.7, while imports fell by 1.7pp to 50.6.
  
• The backlog of orders, at 48.6, was the only subindex showing a contraction last month.
  
• The subindex for inventory sentiment saw the largest drop for the month, declining 6.7pp to 54.8, but still signaling expansion.

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