Growth in Service Sector Slows in September

Bloomberg listed 55.5 as the consensus estimate from a pool of economists, with a range of 55.1 to 56.5. The final reading for August was 56.1.

While this report is not off-base with estimates and not much of a drop, the good news here is that it is still signaling a stronger growth report in the services economy. We also need to keep in mind that the United States is considered a services and post-manufacturing economy.

Another observation is that the outlook is softening, and the warning lights were directly referred to. Markit’s report from Friday said:

The survey data point to sustained steady expansion of the US economy at the end of the third quarter, but various warning lights are now flashing brighter, meaning growth may continue to weaken in coming months.

Although the surveys suggest the economy expanded at a 2.2% annualized rate in the third quarter, growth slowed in September and could weaken further in coming months. Business optimism slumped to one of the lowest levels seen since the global financial crisis, inflows of news business rose at the weakest rate for eight months and job creation slipped to a six-month low. Growth is also becoming increasingly reliant on the services economy as manufacturers struggle against the strong dollar and weak demand in export markets.

Average prices charged for goods and services are meanwhile falling at the fastest rate seen since the survey began in late-2009, suggesting consumer price inflation will weaken in coming months.

With growth slowing, warning lights flashing and prices falling at the fastest rate for at least six years, the survey data play into the hands of dovish policymakers and will reduce the odds of interest rates rising any time soon.

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