By Jeffry Bartash
The numbers: An ISM barometer of U.S. business conditions at companies such as hotels and restaurants dipped to 56.7% in September. Yet the survey also showed steady growth and rising employment in a sign the economy is still expanding.
Numbers over 50% are viewed as positive for the economy, and anything over 55% is considered exceptional.
Economists polled by The Wall Street Journal had expected the index to drop to 56%. The survey is produced by the institute for Supply Management.
The snapshot of the economy painted by the service sector index contrasted with a similar ISM survey of manufacturers that showed deteriorating business conditions.
The closely followed ISM reports are the first major indicators of each month and offer clues on how well the economy is performing.
Big picture: The economy is still plowing ahead, but the future looks dimmer.
The Federal Reserve is raising interest rates sharply to squelch the worst inflation in 40 years, but higher rates usually slow the economy and sometimes can even trigger a recession. Many economists predict a downturn is likely by next year.
“Sales at our restaurants seasonally trend down from August to October, and this year seems to be more severe compared to before the pandemic,” an executive at a restaurant told ISM.
“Business activity has improved over last month but is still trending flat to slightly down versus the same period last year,” a wholesale executive told ISM.
The new orders index fell 1.2 points to 60.6%.
The production gauge slipped 1.8 points to 59.1%
The employment barometer rose 2.8 points to 53%. Yet some companies said they would be more cautious about hiring and rely more on temporary labor in case a recession ensues.
The prices-paid index, a measure of inflation, fell 2.8 points to 68.7%. That marks the fifth straight decline and the lowest level since the start of 2021. Prices are still high and rising, executives said, but they are not rising as rapidly as they were earlier in the year.
Looking ahead: “All the details in this month’s report are encouraging, and they are consistent with our view that the economy was not in a recession in the first half of 2022, nor is it heading into one in the second half,” said money market economist Thomas Simons of Jefferies in a note to clients.