The service sector posted another steady month of growth in September as business activities rose at the fastest rate in three months, the Institute for Supply Management reported on Wednesday.
Except for last December, the sector has expanded in 39 of the past 40 months, a key support for the economic recovery following the pandemic.
The overall service index eased to 53.6 from 54.5 in August, above the 49.9 threshold that indicates expansion.
For other subindexes, the threshold is 50. After running above 55 for most of 2021 and last year, the overall index has settled between 50 to 55, which is a notch below the pre-pandemic average in 2019.
While that indicates a slower growth rate for the service sector, that is what the economy needs at this juncture: a slowly growing sector that can restrain inflation yet helps prevent a recession—in other words, a soft landing.
There should be more room for the sector to stay in positive territory as respondents to the ISM survey in a range of industries suggested:
Conditions remain favorable for mechanical contractors. New construction projects continue to launch. We are still seeing opportunities for cost reductions across many commodities. Inventory levels on finished goods remain strong.
The outlook of our company and the industry is a slow but steady improvement—from a plethora of unknowns to a daily sense of being able to manage the rigors of the supply chain.
Higher level of orders in past month. Business activity is stabilizing to last year’s numbers.
The data
Inside the report, the business activity subindex rose to 58.8 from 57.3, indicating a faster growth rate in September. The prices paid subindex, a predictor of inflation, was unchanged at 58.9, pointing to persistent core inflation on the month.
Read more of RSM’s insights on the economy and the middle market.
New orders slowed materially to 51.8 from 57.5, suggesting some cooling going into the final quarter, which is in line with our call for a significant downshift in gross domestic product growth in the fourth quarter to around 0.5%.
Service-providing companies added more employment in September, although at a slightly lower pace. The employment subindex stood at 53.4, down from 54.7 earlier. That adds more reason to expect another strong month of employment gains in September when the jobs report is released on Friday.
