The Institute for Supply Management said its services sector index, which covers about 90 percent of the economy, eased to 54.2 last month from 55.1 in September, shy of economists' forecasts for 54.5, according to a Reuters survey. The decline reversed only part of September’s gain to leave the index with a small upward trend.
A reading above 50 indicates expansion in the sector.
Business activity and new orders both declined, but they remained above their summer lows. The new orders component, a sign of future demand, fell to 54.8 from 57.7. The business activity index declined to 55.4 from 59.9. Meanwhile, the measure of employment rose from 51.1 to 54.9 -- a seven-month high.
The fall in the headline ISM services index follows the small rise in the ISM manufacturing index reported last week. Factory activities rose to a five-month high of 51.7 last month from 51.5 in September. It was the second month in a row the sector has grown after contracting through the summer.
The nonmanufacturing ISM has been running above the manufacturing ISM for the past few months, and, despite the October decline, the index remains firmly in expansionary territory.
This appears to buck the recent trend in which sectors more exposed to U.S. households have done better than those more exposed to overseas, a Capital Economics note said.
“We look for this trend to continue in coming months and expect that growth in service sector employment will remain resilient,” Cooper Howes, an economist at Barclays Capital, wrote in a note.
The ISM stated that the retail and construction sectors were the best performing nonmanufacturing areas in October.
Sales at major chain stores open at least a year -- a key industry performance metric that excludes the impact of new and closed stores -- rose 2.7 percent in October compared with the same month a year earlier, on par with analysts' expectations, according to Thomson Reuters' tally of 18 retailers. Excluding drugstores, however, retail sales are up 4.7 percent, topping expectations of 4.3 percent.
Paul Dales, an economist with Capital Economics, notes that results from the two ISM surveys suggest annualized gross domestic product growth in the fourth quarter will be much the same as the third quarter’s 2 percent.