America’s service industries expanded in August at the weakest pace in six years, joining manufacturers in an abrupt slowdown that may signal waning optimism about the economy.
The Institute for Supply Management’s non-manufacturing index slumped to 51.4, the lowest since February 2010, from 55.5 in July, the Tempe, Arizona-based group’s report showed Tuesday. While a reading above 50 indicates the industries that make up almost 90 percent of the economy are expanding, the figure is lower than the most pessimistic projection in a Bloomberg survey.
Measures of orders and business activity skidded by the most since 2008, when the U.S. was in a recession, and an employment index moved closer to stagnation. Following the group’s factory survey, which showed manufacturing unexpectedly contracted, and separate figures indicating hiring cooled in August, the services slowdown raises questions about the economy’s strength, adding to the case for the Federal Reserve to hold off on raising interest rates this month.
“There’s no good news in this report, but it is just one month,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “September’s going to be very important — if the weakness persists, then that would raise some concern about the health of the non-manufacturing segment of the economy.”
Stocks fell, bonds climbed and the dollar weakened against most of its major peers after the data were released, with the greenback dropping by the most in five weeks as investors digested the implications for the Fed. Policy makers meet Sept. 20-21 in Washington.
Seven of 18 industries in the survey showed a contraction in August, including retail; arts and entertainment; transportation and warehousing; and mining. That compares with three industries in the July survey.
The setback to demand for services is a surprise given that households are still spending at a solid clip and home sales remain sturdy. The weakness across services and manufacturing may reflect adjustments to capital-spending plans amid declining corporate profits.