U.S. service sector growth picks up

A closely watched gauge of activity in the U.S. services industry grew at a slightly faster pace in September from the month earlier.

The Institute for Supply Management reported Tuesday its index on the non-manufacturing sector advanced to 53.2, better than the 52 reading many economists expected and up from the 51.5 reading in August.

 It was the ninth straight month of expansion. Readings above 50 signal growth. 

The service sector — which includes a broad spectrum of work done by everyone from engineering consultants to restaurant servers — accounts for 90 per cent of American gross domestic product.

The reading followed by four days the ISM manufacturing report, which showed a reading of 54.4 in September, an increase for the 14th straight month.

The services index is made up of several sub categories, which gave a mixed reading on the strength of the recovery in the industry.

New orders gained 2.5 points to reach 54.9 and employment grew by two points to 50.2, which puts that sub-index just below its average of 50.3 over the period from 1997 to 2010.

But business activity fell to 52.8 from 54.4 in August while prices paid also slipped to 60.1 from 60.3.

Data is consistent  

Martin Schwerdtfeger, an economist with TD Economics, said the ISM data is consistent with the slowing of the U.S. recovery he expects for the third quarter.

The pace of job creation, he said, has been "anemic" relative to the 8.4 million jobs lost during the recession.

He estimated that the unemployment rate would likely remain "elevated for the next several years."

"Overall," he predicted, "the U.S. economy will expand 2.6 per cent this year, but in our view it will struggle to reach two per cent growth next year."