(RPT)MNI INTERVIEW: Services Firm, Topping Out Into Q4 - ISM

(Repeats article first published on Oct 4)

The U.S. service sector is likely to see further growth in coming months as employment remains strong and consumer demand persists, though growth could top out at a lower level than previously envisioned, Institute for Supply Management Chair Anthony Nieves told MNI Wednesday.

The ISM services index decreased 0.9pp to 53.6 in September, a smidge better than expectations and a ninth month above the 50-mark that separates growth from contraction.

"I think we're going to stay right around here. We might pop up to 55 or 56 tops. I don't expect it to have a huge spike going in towards the end of the year," said Nieves, who in prior months had shown more confidence the PMI could rebound to the mid-50s for a sustainable period.

The new orders subindex fell 5.7pps to 51.8, the ninth consecutive month showing growth but the lowest this year. Nieves said the monthly decrease was driven mostly by technical factors and that some optimism would rebound in coming months.

"We'll still finish up pretty decent here as we get toward the holidays especially," he said.

SOFT LANDING?

The ISM chief downplayed concerns about a pickup in underlying prices pressures, but said the prices index could stretch higher on energy prices to above 60 from 58.9 currently. Still, Nieves said pricing power among firms had declined substantially over the last year.

Business activity increased 1.5pp to 58.8, the highest since June, while employment eased 1.3pps to 53.4. Nieves added he is still seeing no signs of an imminent recession.

"We're seeing more demand on the line level type of employment versus the upper middle to upper management," Nieves said, noting that the data so far in hand suggests a soft landing. "Overall, it's a tight labor market."

(See: MNI INTERVIEW: Fed's Fujita Sees Signs of Jobs Soft Landing)

Firms are not backfilling positions as much and there is more hiring growth for smaller firms than for larger firms, he said. Data from payroll processing firm ADP showed the U.S. economy added 89,000 private-sector jobs in September, well below expectations of 150k, with small firms adding 95k and large firms losing 83k jobs.