Service firms grow more slowly in October

WASHINGTON — U.S. service companies grew at a slightly weaker pace in October than September because sales and new orders slowed. But a measure of employment rose, indicating services firms hired more.

The Institute for Supply Management said Monday that its index of non-manufacturing activity fell to 54.2. That’s down from a six-month high of 55.1 in September. Any reading above 50 indicates expansion.

The report measures growth in a broad range of businesses from retail and construction companies to health care and financial services firms. The industries covered employ about 90 percent of the work force.

A gauge of hiring rose to a seven-month high of 54.9. The government said Friday that services firms added 163,000 net jobs in October. It was the best showing since February and represented 95 percent of the jobs created last month.

October’s ISM reading matched the 12-month average for the index. Overall, 13 industries reported growth and five contracted. The industries reporting the fastest growth were agriculture, construction, management of companies, and finance and insurance; those showing the most contraction were mining and arts and entertainment.

A measure of current sales fell to 55.4 after jumping to 59.9 in September. New orders fell, partly because of a decline in export orders. That reflects Europe’s economic slowdown and weaker growth in larger developing countries such as Brazil.

Economists said the report still shows there is some momentum in the service sector. October’s reading is above the July-September average of 53.8.

“The tentative indication … is that growth may well be improving,” Joshua Shapiro, chief economist at MFR Inc., said in a note to clients.

The ISM reported last week that manufacturing expanded for a second straight month in October. The sector had contracted from June through August.

Jonathan Basile, an economist at Credit Suisse, says the October readings of the manufacturing and non-manufacturing indexes are consistent with an annual growth rate of about 2.3 percent. That would be an improvement from the 2 percent pace in the July-September quarter.

Superstorm Sandy could drag on growth in the final three months of the year, economists noted. Still, most expect the impact to be temporary. Hiring and growth should pick up again early next year when homes and businesses damaged by the storm are rebuilt or repaired, they said.

The storm had no impact on Monday’s report, the ISM said, because the survey was completed before it made landfall.

Employers added 171,000 jobs in October and hiring was also stronger in August and September than first thought, the government said Friday. The unemployment rate rose to 7.9 percent from 7.8 percent in September. The increase mainly reflected the fact that many more people began looking for work last month and not all of them found jobs.

Service companies have been a key source of job growth this year. They have created about 90 percent of the net jobs added since January. Still, many of the new service jobs have been low-paying retail and restaurant positions.

The unemployment report was the last major snapshot of the economy before Tuesday’s elections.

President Barack Obama will face voters with the highest unemployment rate of any incumbent since Franklin Roosevelt. Republican challenger Mitt Romney has made high unemployment and the weak economy the major point in his effort to deny Obama a second term.

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