Service sector activity is slowing – Prices? Not so much

Wells Fargo Research Team Wells Fargo

Summary

The service sector is still expanding, but it is doing so at a slower rate. The moderation in activity has not yet been sufficient to cool prices as fast as policymakers at the Federal Reserve might like to see, although a sustained softening in the labor market might just do the trick.

Loss of momentum, but still growing

The ISM Services Index came in at 51.8 for October marking the second straight monthly decline in the index, while still remaining in expansion territory at the start of the fourth quarter (chart). Unlike the factory sector which is in outright decline, businesses in the service economy are merely dealing with a loss of momentum.

Details were mixed as the business activity component shed 4.7 points to come in at a five-month low of 54.1, while new orders rose 3.7 points to hit 55.5 (chart).

The impact of the UAW strikes appeared at various points throughout the excerpted comments ranging from being a source of “risk and caution [with]...customers who have pulled back” (Wholesale Trade) to “having no impact so far” (Retail Trade).

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Wells Fargo Research Team

Wells Fargo

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