U.S. services sector grows, job losses decline
The U.S. services sector, which represents about 80 percent of U.S. economic activity, grew for the second consecutive month in October, while the labor market also showed signs of improvement in data published on Wednesday.
The U.S. Institute for Supply Management’s services index slipped to 50.6 last month from 50.9 in September, below economists’ median forecast for a rise to 51.5, with the dividing line between growth and contraction being 50.
Although the report showed growth in the sector, analysts were disappointed in the employment index, which fell to 41.1 in October from 44.3 in September.
“It’s disappointing that it didn’t hit the consensus number but the good news is that the index stayed above 50,” said John Canally, economist, with LPL Financial in Boston.
“New orders are very strong for two months in a row and inventories are being restocked. The big disappointment is the employment number which dropped as opposed to the manufacturing sector index earlier this week.”
The report was roughly in line with surveys in Europe earlier on Wednesday suggesting service sector activity expanded at its fastest in 22 months in October in the euro zone, and in Britain at its briskest since August 2007, when the global credit crunch struck.
LABOR MARKET HURTS LESS
In other U.S. data on Wednesday, private sector companies reduced jobs in October at the slowest pace in more than a year, shedding 203,000 positions, fewer than a revised 227,000 jobs lost in September, according to the ADP Employer Services LLC report.
The October private job loss was the smallest since July 2008.
“There are still a lot of people out there feeling pain,” said Macroeconomic Advisers’ chairman Joel Prakken. “But we are heading in the right direction.”
The ADP figures are seen by some analysts as a proxy for the government’s closely watched report on non-farm payrolls. The U.S. Labor Department will release its October labor report on Friday at 8:30 a.m. EST.
Analysts polled recently by Reuters projected U.S. payrolls likely shrank by 175,000 in October, compared with a 263,000 decline in September.
Economists do not expect job growth to take place until 2010.
“We did have a month-on-month improvement in ADP but we are still losing jobs, and the 10 percent unemployment barrier has huge psychological significance,” said Michael Woolfolk, senior currency analyst at BNY Mellon in New York.
Still, the pace of private job losses has slowed since the 736,000 drop in March, according to ADP data.