© Reuters.

(Bloomberg) — U.S. service industries expanded at a slower rate in August as orders growth downshifted, indicating a more moderate pace of economic recovery from the pandemic.

The Institute for Supply Management data showed Thursday that its services index fell 1.2 points to 56.9 during the month, in line with median projection in a Bloomberg survey of economists. It marked the first decline in four months. Readings above 50 indicate growth.

The purchasing managers group’s gauge of business activity, which parallels the ISM’s factory production index, also retreated from the strongest reading since 2004 to show a more tempered pace of expansion. Even as the economy opens more broadly, the pandemic poses a bigger challenge to many service industries, including retail, dining and travel.

“Respondents’ comments are mostly optimistic and industry specific about business conditions and the economy as businesses are starting to reopen. Industries that have not reopened remain concerned about the ongoing uncertainty,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.

What’s more, businesses face a variety of hurdles, including still-elevated unemployment, tepid business investment and fledgling global demand.

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. So the figures are subject to bigger swings during turning points in the economy.

Fifteen service industries reported growth in August, including health care, transportation and construction.

The group’s index of business activity dropped 4.8 points to a still-robust 62.4 in August, while the index of new orders fell 10.9 points to a three-month low of 56.8.

Services Employment

The ISM’s measure of services employment increased to a six-month high of 47.9 from 42.1, signaling some improvement in the labor market. One respondent in the survey said that hiring was “authorized yet slow to materialize.” The Labor Department will release its August jobs report on Friday.

The data also contained some favorable news for the nation’s manufacturers. Inventories contracted at service providers and order backlogs increased, suggesting production will pick up in coming months. The ISM’s manufacturing report showed similar results, with factory stockpiles declining at a fastest rate since 2014.

For wholesalers and retailers, “we see businesses reopening; there’s definitely going to have to be a buildup going forward with the increase of activity,” Nieves said on a call with reporters.

The ISM’s headline factory gauge expanded at the fastest pace since 2018, powered by growth in new orders. Manufacturing has been a recent bright spot in the economy, boosted by strong demand in the housing and auto sectors.

©2020 Bloomberg L.P.

 

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