Northwest Arkansas Democrat-Gazette
‘We will overcome’
Organization forms to help region’s poultry workers.
WASHINGTON — Growth in the U.S. economy’s services sector slowed sharply in September to its lowest point in three years, bolstering worries about the economy.
The Institute for Supply Management, an association of purchasing managers, said Thursday that its nonmanufacturing index sank to 52.6 from 56.4 in August. Readings above 50 signal growth, but September’s figures are the lowest since August 2016.
The report renewed fears of an economic slowdown and caused alarm among stock traders. The Dow Jones industrial average fell more than 200 points immediately after the institute released its report Thursday morning, before recovering all its losses later.
The downshift in the services sector coincides with a U.S.-China trade war that has been squeezing American manufacturers. The services sector has so far mainly weathered those pressures. But slower global growth, rising trade tensions and persistent economic and political uncertainties appear to be rattling the services industries, which account for the biggest share of the labor force.
Sales, new orders and employment all weakened last month, and companies that were surveyed by the institute expressed concerns about tariffs. Economists say a particular cause for concern is a drop in the employment measure of the institute’s index to 50.4, its lowest level since February 2014.
“The most concerning part of the survey was on the employment side, where the index dropped from 53.1 to 50.4, just barely indicating growth,” a note from Contingent Macro Research said.
Survey respondents suggested that a tightening workforce was intensifying competition for qualified employees.
“It’s just tough getting workers to fit certain open positions,” said Anthony Nieves, chairman of the in
stitute’s nonmanufacturing business survey committee. “There has been some pullback as well by the respective companies.”
But Ben May, an economist at Oxford Economics, said weaker employment was also likely caused, at least in part, by heightened economic uncertainty and global manufacturing weakness. May added that this would likely spill over to hurt other areas in the U.S. economy.
“If softer and more uncertain economic prospects are the cause of weaker labor demand, any employment downturn is more likely to be accompanied by weaker consumer sentiment and slower wage [growth] and investment,” May said in a research note.
Economic growth in recent months has been driven, even more than usual, by consumer spending as businesses have slowed their expansion and investment because of President Donald Trump’s trade conflicts. But with the administration’s tariffs beginning to hit consumer goods from China and Europe, the forces that are hammering manufacturing are threatening to weaken household spending, the U.S. economy’s primary fuel.
Today’s monthly Labor Department employment report, which is projected to show moderate job and wage growth, will update policymakers on how households are positioned to sustain their spending.
“The next few months will be a test of the U.S. consumers’ confidence in the face of recession-talk headlines, the next round of tariffs impacting consumer
goods, financial market volatility and the latest political uncertainty in Washington,” said Ksenia Bushmeneva, an economist at TD Economics.
In 2016, economists noted, consumer spending helped prevent the economy from slipping into a recession as a sharp drop in oil prices caused production across the manufacturing supply chain to plunge. But Tim Quinlan, a senior economist at Wells Fargo Securities, said the risk of factory weakness spilling over to consumer spending and the services sector is greater in today’s environment if the higher costs resulting from tariffs cut into consumer spending.
“Back in 2016, the drop in gas and fuel prices acted as a bit of a tailwind for consumer spending,” Quinlan said. “This time, you have head winds from rising goods prices as a result of the tariffs.”
The weakening in U.S. services mirrored developments in Europe, where Germany registered a sharp slowdown in services activity. IHS Markit reported its gauge dropped to a three-year low of 51.4 in September from 54.8 a month earlier. Information for this article was contributed by Bani Sapra of The Associated Press and by Reade Pickert of Bloomberg News.