US services firms grow at slower but still healthy pace in October; hiring picks up

WASHINGTON – U.S. services firms expanded more slowly in October, but the pace of growth was still healthy. Hiring also rose to the fastest pace in more than nine years.

The Institute for Supply Management said Wednesday that its services index dropped to 57.1 in October, down from 58.6 in September. That was the second straight drop after the index had risen steadily since February to 59.6 in August, the highest in eight years. Any reading over 50 indicates expansion.

Steady hiring this year means more Americans are earning paychecks, which supports spending at retail stores, hotels and other service companies. While solid, Wednesday’s data indicates that growth among service firms is cooling off a bit after rapid expansion earlier this year.

The ISM is a trade group of purchasing managers. Its survey of services firms covers businesses that employ 90 per cent of the American workforce, including retail, construction, health care and financial services firms.

Sixteen industries tracked by the survey reported growth, led by construction, retail and agriculture. Two industries shrank: arts, entertainment and recreation, and finance and insurance.

A gauge of hiring rose to 59.6, its highest level in nine years. That increase suggests that Friday’s government report on jobs and unemployment could show another strong gain.

Earlier Wednesday, payroll processor ADP said businesses added 230,000 jobs last month, the most in four months and a sign of healthy hiring.

And Jim O’Sullivan, an economist at High Frequency Economics, noted that October’s 57.1 is still far above the average reading of 54.4 in the first half of the year.

Still, there were plenty of signs that growth among service firms may have reached a plateau after accelerating for most of this year. A gauge of new orders fell nearly two points to 59.1, and a measure of order backlogs also fell.

“The majority of the respondents’ comments reflect favourable business conditions,” said Anthony Nieves, chair of the ISM’s services index committee. “However, there is an indication that there continues to be a levelling off from the strong rate of growth of the preceding months.”

New export orders fell sharply, to 53.5 from 57.5 in September, a sign that slowing growth overseas is beginning to impact U.S. firms. However, most of the firms responding to the survey are focused on the U.S. market and don’t have any international business. Only about 35 per cent said they had any overseas sales.