US services sector stalls as new orders slow to a crawl, employment weak

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By Lucia Mutikani

WASHINGTON (Reuters) -U.S. services sector activity stalled in September amid a sharp slowdown in new orders, while subdued employment added to mounting evidence of sluggish labor market conditions because of waning demand and supply of workers.

The survey from the Institute for Supply Management (ISM) on Friday could gain more prominence after a lapse in funding undefined forced a shutdown of the U.S. government and delayed the release of the closely watched monthly employment report for September.

The ISM said its nonmanufacturing purchasing managers index (PMI) fell to 50 last month, the breakeven level, from 52.0 in August. Economists polled by Reuters had forecast the services PMI easing to 51.7. The services sector accounts for more than two-thirds of U.S. economic activity.

Tariffs on imports have eroded business sentiment, constraining activity across the services and manufacturing sectors. The survey’s measure of new orders received by services businesses dropped to 50.4 from 56.0 in August.

BACKLOG ORDERS ARE STILL SUBDUED 

Both backlog and export orders remained subdued. Though a gauge of services sector employment inched up to 47.2 from 46.5 in August, it was the fourth straight month that it was mired in contraction territory. That aligns with other data that have suggested the labor market has stagnated.

Demand for workers has slackened. Economists blame this on the drag from uncertainty stemming from tariffs as well as the rise of artificial intelligence. At the same time, immigration raids have reduced labor supply, creating a dynamic that has left the labor market in paralysis.

Data from the Chicago Federal Reserve on Thursday, which combines private and available public numbers, estimated the unemployment rate was unchanged at 4.3% in September. The government reported on Tuesday there were 0.98 job openings undefined for every unemployed person in August compared to 1.0 in July.

Economists expect the lackluster labor market will spur the Federal Reserve to cut interest rates this month. The U.S. central bank resumed easing policy in September, cutting its benchmark overnight interest rate by 25 basis points to the 4.00%-4.25% range, to aid the labor market.

With the full inflationary effects of tariffs still to be felt, a rate cut is not guaranteed. The ISM survey’s measure of prices paid by businesses edged up to 69.4 from 69.2 in August.

Services inflation has firmed up in recent months, driven by higher airline fares as well as rises in prices at restaurants, and more expensive hotel and motel rooms.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama )