Service industries expand at slowest pace in five months

U. S. service industries expanded in October at the slowest pace in five months as orders and employment cooled, indicating more moderate growth in the biggest part of the economy.

The Institute for Supply Management’s services index declined to 56.6 during the month from 57.8 in September, according to data released on Wednesday. Readings above 50 indicate expansion, and the October figure was weaker than all but one estimate in a Bloomberg survey of economists that had called for 57.5.

While still at a healthy level, the index shows less momentum among service industries that include leisure and hospitality, dining and travel. A resurgence in coronavirus cases and the potential for tighter restrictions on business risks impacting service providers disproportionately.

At the same time, steady consumer demand for merchandise and a pickup in business investment is generating more activity for the nation’s factories. The ISM manufacturing index released Monday showed faster growth in new orders, employment and production.

The divergence in activity at service providers and manufacturers has its roots in a shift in consumer spending preferences. The value of household outlays for merchandise expanded in the third quarter at a 45.4% annualized pace to $5.14 trillion, well above the pre-pandemic peak. In contrast spending on services grew at a 38.4% rate to $7.93 trillion, well short of the value at the end of 2019, last week’s gross domestic product report showed.