Economic Slowdown In Service Sector

Wednesday, October 3rd 2007, 10:39 am
By: News On 6

NEW YORK (AP) The U.S. service economy, feeling the drag of the slumping housing market, expanded at a slower pace in September than in August, a trade group said Wednesday.

The Institute for Supply Management's index gauging the health of non-manufacturing industries registered at 54.8 in September, down from 55.8 in August and below the 12-month high of 60.7 reached in June.

The index, now at its lowest point since March, falls in line with economists' estimates. A reading above 50 indicates economic expansion in the service sector, while one below 50 indicates contraction.

The service sector makes up 80 percent of U.S. economic activity, and on Monday the Institute for Supply Management also reported weakening growth in the manufacturing sector.

With both of these portions of the economy losing steam, the Federal Reserve may feel more inclined to lower interest rates further.

On September 18, the Fed reduced a key rate by a half-point, and meets again at the end of October to decide whether to make borrowing even cheaper and, in turn, stoke spending.

However, within the Institute for Supply Management's report were items that might give the Fed pause: expansion in employment and accelerating prices, a sign that inflation might not be easing, as the central bank hopes. The employment index logged in at 52.7 in September, up from 47.9 in August, and the prices index was at 66.1, up from 58.6.

Businesses including banking, health care, retail, utilities, transportation, and wholesale trade reported growth in September, but industries such as agriculture, professional services, and arts and entertainment said business activity decreased.

The Institute for Supply Management said its survey respondents cited factors including the slow housing market, budget concerns, price competition and general caution about the economy's direction as reasons why growth has moderated.