U.S. Service Industries Expand More Than Forecast on Orders

(Bloomberg) -- U.S. service industries expanded in September by more than forecast as faster growth in new orders and a pickup in employment pointed toward a better pace of economic recovery.

The Institute for Supply Management's services index, which represents about 90% of the economy, climbed to 57.8 during the month from 56.9 in August, according to data released on Monday. Readings above 50 indicate expansion, and the September figure exceeded the 56.2 median estimate in a Bloomberg survey of economists.

Improving orders and business activity are encouraging more service providers to add to headcounts. The figures, in combination with an improvement in the group's manufacturing gauge, suggest the economic rebound is gradually broadening, even if activity remains below pre-pandemic levels in various sectors.

“Respondents' comments remain mostly optimistic about business conditions and the economy, which correlates directly to those businesses that are operating,” Anthony Nieves, chair of the ISM Services Business Committee, said in a statement. “There continues to be capacity and logistics issues, as business volumes have increased.”

Sixteen service industries reported growth in September, including entertainment and recreation, transportation, health care and real estate. Professional, scientific and technical services was the only industry reporting a decrease.

The ISM's measure of services employment jumped 3.9 points to 51.8, marking the first time since the onset of the pandemic that the gauge has shown expansion.

The ISM report doesn't detail the actual levels of activity from one month to the next since the survey asks purchasing managers whether activity is increasing, decreasing or stagnant.

A report Friday from the Labor Department showed job growth slowed in September, with employers adding a less-than-forecast 661,000 jobs. The figure was restrained by a 280,500 decline in state and local education payrolls.

Federal government “stimulus is necessary,” Nieves said on a call with reporters. “It's a big issue right now, not only for the consumer, but all the associated type of funding that would come from that.”

The ISM's index of new orders at service providers increased 4.7 points to 61.5. The measure of service-related business activity, which parallels the ISM's factory production index, rose to 63 from 62.4, marking the fourth month of robust readings.

The group's gauge of exports expanded at a slower rate in September, indicating cooler overseas demand. Inventories at service providers also shrank for a second month.

©2020 Bloomberg L.P.