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Activity in the service sector expanded for the first time in a year in the month of September, according to a report released by the Institute for Supply Management on Monday, with the index of activity in the sector coming in higher than anticipated.
The ISM said its index of activity in the service sector rose to 50.9 in September from 48.4 in August, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to increase to a reading of 50.0.
With the bigger than expected increase, the index rose above the key 50 level for the first time since August of 2008 and reached its highest level since coming in at 51.2 in May of 2008.
However, Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, noted, "Even with the overall month-over-month growth reflected in the report this month, respondents' comments vary by industry and remain mixed about business conditions and the overall economy."
A notable expansion in new orders contributed to the growth in the sector, with the new orders index jumping to 54.2 in September from 49.9 in August. The reading above 50 marked the first expansion in new orders since September of 2008.
The report also showed that the business activity/production index rose to 55.1 in September from 51.3 in August, indicating the second consecutive month of growth.
While the employment index also edged up to 44.3 in September from 43.5 in the previous month, it still indicated a contraction in service sector jobs.
On the inflation front, the ISM said that the prices paid index fell to 48.8 in September from 63.1 in August, suggesting a notable turnaround in prices.
Commenting on the data, Peter Boockvar, equity strategist for Miller Tabak, said, "Bottom line, the data over the past week is best described as Blah, and while today's number was slightly better than expected, the recovery will clearly be bumpy."
Last Thursday, the ISM released a separate report showing that activity in the manufacturing sector continued to expand in September, although the pace of expansion unexpectedly slowed compared to the previous month.
The ISM said its index of manufacturing activity edged down to 52.6 in September from 52.9 in August, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to increase to a reading of 54.0.
The slower pace of growth in manufacturing activity in September was partly due to the end of the government's cash for clunkers program, which likely contributed to some weakness in the auto sector.
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