Services Sector Growth Slows Amid Global Economic Contraction


Growth in the U.S. services sector slowed in September, driven largely by a softening retail market and weakening of the global economy, the Institute for Supply Management reported this week. ISM’s latest Report on Business showed the non-manufacturing index (NMI) registered 56.9% last month, down 2.1% from August.

In a conference call with reporters on Monday, Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, pointed to contractions in the mining and retail industries, as well as economic activity both domestically and globally for the slowdown in the services sector. However, despite a “bit of cooling off and softening” in the market, the services sector still experienced growth month over month. A reading of the NMI above 50% represents growth in the sector.

The NMI peaked this year in July, reaching 60.3%. Anthony also said ISM was not confident the strong level of growth on the NMI in July and August would prove to be sustainable in September.

Inventories Grow, Too

Inventories in the non-manufacturing industry continued to grow in September as well, marking the sixth consecutive month of inventory rises. The non-manufacturing inventories index registered at 51% in September. Utilities, mining and healthcare and social assistance were among the specific industries reporting an increase in inventories last month.

However, the fact that inventories continue to grow is not concerning at this point for ISM, Anthony said. The inventories index did rise at a lower rate in September compared with August, when it hit 54.5. This points to some “cooling off” here as well, Anthony said, and respondents of the survey indicated they are matching their inventories to current business levels. New orders, too, dropped 6.7% in September, hitting 56.7%.

Final Comments

While the September indicators of service sector performance are not alarming, it should be kept in mind that the service sector represents more than 80% of U.S. GDP.  

More than 70% of all new businesses are service businesses. In addition, with services accounting for about 30% US exports, the ongoing weakening of the global economy may be alarming. In any event, the performance of the service sector and its impact on the overall economy should not be overlooked.  

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