Service Firms Expand More Quickly in October

Tuesday, 05 Nov 2013 10:16 AM

 

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Activity at U.S. service firms accelerated in October behind a jump in sales and more hiring, suggesting businesses largely shrugged off the partial government shutdown.

The Institute of Supply Management said Tuesday that its service-sector index rose to 55.4 in October, up from 54.4 in September. Any reading above 50 indicates expansion.

The expansion at service firms echoes an ISM survey of manufacturers released last week, which showed the fastest growth at factories in 2 ½ years. Combined, the two reports suggest the private sector is showing steady growth and was not greatly affected by the shutdown.

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The increase "supports other evidence suggesting that the wider economy shrugged off the government shutdown," said Paul Dales, an economist at Capital Economics. "With the shutdown over, the index may rise further in November as any postponed activity takes place."

The service-sector report measures growth at companies that employ 90 percent of the workforce, including retail, construction, health care and financial services. A measure of their sales jumped 4.6 points last month to 59.7. And a gauge of hiring rose 3.5 points to 56.2. Measures of new orders and new export orders fell.

Anthony Nieves, chair of the ISM's service-sector survey, noted that some companies in the hotel, restaurant and retail industries complained about the shutdown. One retailer also cited concerns about the cost of health care reform. But those concerns "did not seem to translate into the numbers that we see here."

The increase in the hiring index suggests service firms added more jobs. The October employment report will be released Friday. Many economists expect it will be weak because of the shutdown, which furloughed about 450,000 federal workers. And it likely caused temporary layoffs at government contractors and other businesses that depend on government services, such as parks. Analysts forecast that employers added just 122,000 jobs last month, below September's 148,000. The unemployment rate is forecast to have risen to 7.3 percent.

The ISM survey partly reflects consumers' willingness to spend. Other recent reports suggests Americans are spending, but at a cautious pace. Unemployment is at a still-high 7.2 percent and workers are seeing only meager increases in pay.

Sales at retail stores, auto dealers and restaurants dipped 0.1 percent in September, mostly because auto sales fell 2.2 percent. But excluding the volatile categories of autos, gas and building supplies, sales rose 0.5 percent, up from 0.2 percent in August.

Consumer spending on services, particularly utilities, has been weak. Most economists forecast that consumer spending slowed in the July-September quarter compared with the April-June quarter.

Growth likely slowed in the July-September quarter to an annual rate of about 2 percent, economists forecast, down from 2.5 percent in the April-June quarter. Some economists believe it may pick up a bit in the final three months of the year.

The government will issue its first estimate of the economy's third-quarter growth on Thursday.

Editor’s Note: 75% of Seniors Make This $152,000 Social Security Mistake (See Easy Fix)

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