The US services sector cooled slightly in September on slower growth in new orders and employment, according to survey data released Wednesday.
The services index of the Institute for Supply Management (ISM) edged down to 53.6 percent last month from 54.5 percent in August, as analysts warn of weakness ahead.
The latest reading sits above the 50-point mark signaling growth, and ISM said Wednesday that the services sector has expanded for a ninth straight month.
“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,” said ISM survey chair Anthony Nieves in a statement.
He added that “the majority of respondents remain positive about business conditions” even if some had worries about challenges ahead.
Activity in services is holding up even as the manufacturing sector has been struggling after the US Federal Reserve embarked on an aggressive campaign to lower inflation by lifting interest rates.
The rate hikes are expected to weigh on consumer demand and business expansion.
But services activity has been supported in part by excess household savings during the pandemic.
– Risky –
“It would be risky, however, to extrapolate the recent resilience in services into the future,” said economist Kieran Clancy of Pantheon Macroeconomics.
Excess savings have been “run down significantly, and pent-up demand for services mostly met,” he added.
“History suggests that the point of maximum pain for services will come early next year, with the recent modest downturn morphing into a steeper deterioration soon,” Clancy noted.
In September, 13 industries reported growth while five saw declines, according to ISM.
While the business activity index picked up from August, the new orders index slipped 5.7 percentage points to 51.8 percent.
There was a “higher level of orders” in the past month, said a survey respondent in transportation and warehousing, adding that “business activity is stabilizing to last year’s numbers.”
Another respondent in retail trade said: “Business is ramping up in preparation for the holiday season. Our supply chain is strong.”