U.S. Service Industries Expand at Slowest Pace in Five Months

U.S. service industries expanded in October at the slowest pace in five months as orders and employment cooled, indicating more moderate growth in the biggest part of the economy.

While still at a healthy level, the index shows less momentum among service industries that include leisure and hospitality, dining and travel. A resurgence in coronavirus cases and the potential for tighter restrictions on business risks impacting service providers disproportionately.

“Respondents comments are cautiously optimistic about business conditions and the economy,” Anthony Nieves, chair of the ISM Services Business Committee, said in a statement. “There is a degree of uncertainty due to the pandemic, capacity constraints, logistics and the elections.”

At the same time, steady consumer demand for merchandise and a pickup in business investment is generating more activity for the nations factories. The ISM manufacturing index released Monday showed faster growth in new orders, employment and production.

Read more: U.S. Manufacturing Expands at Best Pace Since 2018

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The divergence in activity at service providers and manufacturers has its roots in a shift in consumer spending preferences. The value of household outlays for merchandise expanded in the third quarter at a 45.4% annualized pace to $5.14 trillion, well above the pre-pandemic peak. In contrast spending on services grew at a 38.4% rate to $7.93 trillion, well short of the value at the end of 2019, last weeks gross domestic product report showed.

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Sixteen of 18 service industries reported growth in October, led by transportation and warehousing, construction and accommodation and food services.

The ISM‘s index of new orders at service providers eased 2.7 points to 58.8. The measure of service-related business activity, which parallels the ISM’s factory production index, fell to 61.2 from 63, while the measure of services employment decreased 1.7 points to 50.1. The governments October employment report on Friday is projected to show payrolls rose 600,000, indicating the pace of overall hiring is improving but at a slower pace.

ISMs gauge of exports expanded at a faster rate in October, indicating stronger demand from overseas customers.

— With assistance by Kristy Scheuble