U.S. Service Sector Activity Expands At Slower Rate In October

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Activity in the U.S. service sector grew at a slower rate in the month of October, according to a report released by the Institute for Supply Management on Wednesday, with the index of activity in the sector falling by more than anticipated.

The ISM said its non-manufacturing index dropped to 57.1 in October from 58.6 in September, although a reading above 50 indicates continued growth in the service sector. Economists had expected the index to show a more modest drop to 58.0.

With the bigger than expected decrease, the non-manufacturing index fell to its lowest level since hitting 56.0 in June.

Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, said, "The majority of the respondents' comments reflect favorable business conditions; however, there is an indication that there continues to be a leveling off from the strong rate of growth of the preceding months."

The report showed that the business activity index dropped to 60.0 in October from 62.9 in September, while the new orders index slid to 59.1 from 61.0.

On the other hand, the employment index climbed to 59.6 in October from 58.5 in the previous month, indicating faster job growth in the service sector.

A separate report released by payroll processor ADP earlier in the day said service-providing employment rose by 181,000 jobs in October following an increase of 176,000 jobs in September.

Meanwhile, the ISM said the prices index tumbled to 52.1 in October from 55.2 in September, pointing to a notable slowdown in the pace of price growth.

James Knightley, an economist at ING Bank, said, "The ISM non-manufacturing index was unable to replicate the surprise jump seen in the manufacturing index earlier this week."

"Nonetheless, this is still a very strong reading and the series continues to run well above its 12 month average and substantially above the 50 break-even level," he added.

Monday morning, the ISM released a separate report showing that U.S. manufacturing activity unexpectedly grew at a faster pace in the month of October.

The ISM said its index of manufacturing activity climbed to 59.0 in October from 56.6 in September. The increase came as a surprise to economists, who had expected the index to dip to 56.0.

With the unexpected increase, the manufacturing index matched the reading reported for August, which is the highest reading for the index since March of 2011.

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