Service economy grows, but pace slows
NEW YORK -- The shriveled housing market may be a drag on U.S. business activity, but it hasn't stopped it. The nation's service economy, like its manufacturing sector, slowed in September but still saw growth.
The service sector hasn't seen a month of contraction in four-and-a-half years, according to the Institute for Supply Management's monthly reports.
"I really think it throws some cold water on the notion that the economy is going to fall out of bed," said Wachovia Corp. economist Mark Vitner. "None of the numbers we've seen on the economy point to recession. It points to moderate economic growth."
The ISM's index gauging the health of non-manufacturing industries registered at 54.8 in September. That's down from 55.8 in August and below the 12-month high of 60.7 reached in June, but above 50 -- the threshold between expansion and contraction.
On Sept. 18, the Fed calmed financial markets and reduced a key interest rate by a half-point. The Fed board meets again at the end of October to decide whether to make borrowing even cheaper and, in turn, stoke spending.
The ISM reports "wouldn't prevent the Fed from cutting interest rates again," Vitner said. But he added that they don't "scream out" for a rate cut, either.
Within the ISM'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.
A weaker ISM service sector report could have ignited investor enthusiasm for another rate cut by the Fed. Many investors expect the central bank to trim rates further this year, but there is debate over whether another reduction might come later this month or in December.
The construction and real estate industries, struggling with a dismal residential housing market, said activity was flat in September compared with August.
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 activity decreased.
The ISM said its survey respondents cited the slow housing market, budget concerns, price competition and general caution about the economy's direction as reasons why growth has moderated.