By Lucia Mutikani
WASHINGTON (Reuters) – U.S. services sector activity slowed to a three-year low in September amid rising concerns about tariffs, the latest sign that trade tensions were eroding economic momentum.
Despite the rising risks of a recession, the economy likely remains on a moderate growth path. Other reports on Wednesday showed the number of Americans filing for unemployment benefits rose slightly last month and layoffs fell to a five-month low in September. Labor market strength, which is supporting consumer spending, is driving the longest economic expansion in history, now in its 11th year.
The Institute for Supply Management (ISM) said its non-manufacturing activity index fell to a reading of 52.6 in September, the lowest since August 2016, from 56.4 in August.
A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index would fall to 55.1 in September.
The ISM said businesses “are mostly concerned about tariffs, labor resources and the direction of the economy.”
The ISM reported on Tuesday that its measure of national manufacturing activity plunged in September to its lowest level since June 2009, when the Great Recession was ending.
Economic growth estimates for the third quarter are as low as a 1.3% annualized rate. The economy grew at a 2.0% pace in the second quarter, slowing from a 3.1% rate in the January-March period. In addition to the U.S.-China trade war, which is pressuring business investment, the economy is also losing momentum as the stimulus from last year’s $1.5 trillion tax cut package fades.
The slump in manufacturing and business spending could prompt the Federal Reserve to cut interest rates again later this month. The U.S. central bank cut rates last month after reducing borrowing costs in July for the first time since 2008 to keep the economic expansion on track.
September’s drop in services industry activity reflected declines in measures of production and new orders, which fell to a three-year low. A gauge of services industry employment fell to 50.4 last month, the lowest level since February 2014, from 53.1 in August.
U.S. stocks fell sharply and U.S. Treasury yields tumbled after the ISM services data. The dollar hit a four-week low against the yen and one-week trough against the euro.
LAYOFFS REMAIN LOW
In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 219,000 for the week ended Sept. 28.
Economists polled by Reuters had forecast claims would increase to 215,000 in the latest week. The Labor Department said no states were estimated last week. Claims have now increased for three straight weeks.
Some of the rise in claims could be the result of an ongoing strike by workers at General Motors. While striking workers are not eligible for unemployment benefits, the work stoppage has affected production, impacting non-striking employees at suppliers. There was a jump in manufacturing claims in Michigan during the week ended Sept. 21.
Another report on Thursday from global outplacement firm Challenger, Gray & …read more
Source:: Daily times