The U.S. economy continues to show signs that activity is indeed stabilizing, however, the economy is still weak amid the worst recession since WWII, whereas the services sector continued to expand in October, but over a slower pace than that reported back in September, as it seems that the services sector will need some time before it can regain its health.

The Institute for Supply Management released today its Non-manufacturing index for the month of October, the ISM services index dropped slightly to 50.6 from the prior reported estimate of 50.9 back in September and below median estimates of 51.5, however, the services sector still managed to expand for a second consecutive month in October.

Business activity increased slightly to 55.2 from 55.1, while the prices paid index rose to 53.0 from 48.8, new orders also rose in October to 55.6 from 54.2, while the inventory sentiment index rose to 63.5 from 62.0, however, the inventory change index dropped to 43.0 from 47.5, and employment retreated to 41.1 from 44.3, and new exports orders rose to 53.5 from 48.5.

The services sector remains somehow weak, though economic conditions are improving gradually, yet the services sector is still unable to report strong growth in activity, but we shouldn’t expect a strong rebound in the services sector, as the economy is still under pressure from the worst financial crisis since the Great Depression.

The services sector will probably continue to suffer from an ongoing weakness over the upcoming few months, as rising unemployment and tightened credit conditions continue to hammer activity in the sector, especially in the financial sector, as banks and financial institutions in particular are yet to return back to normal activity, and that will continue to pressure activity in the services sector at least in the near future.

The recent signs emerging from the U.S. economy suggest that growth won’t be as strong in the fourth quarter as that witnessed in the third quarter, as the economy grew by 3.5% on the back of the government’s fiscal stimulus which indeed helped in supporting consumer spending, however, as the effects of the governmental aid starts to fade, we should expect economic growth to slowdown a bit, until conditions start to improve fundamentally.

Other important signs was provided in the index concerning the labor market, as the employment index dropped in October, which signals that companies in the non-manufacturing sector are still firing workers in order to reduce costs and survive the ongoing economic weakness. Today the ADP employment report signaled that private employers shed 203,000 jobs in October, while investors will be waiting for Friday’s jobs report to confirm how many people exactly were laid off in October.

Unemployment will probably rise beyond 10% this year and that should weigh down on activity in the services sector as well as other economic sectors in the United States, as rising unemployment will hammer consumer spending and accordingly economic growth will remain weak over the upcoming period…