(Bloomberg) -- The US services sector expanded at a modest pace for a second month in August as a measure of employment effectively stagnated and order backlogs slumped.
The Institute for Supply Management’s index of services was little changed at 51.5. Readings above 50 indicate expansion. The employment index slipped to 50.2 during the month, according to the figures issued Thursday.
After improving slightly in July, the group’s order backlogs measure slumped nearly 7 points, the most in a year. While the index is volatile, the contraction in backlogs over two of the last three months risks prompting companies to adjust headcount and worker hours.
Government figures out Wednesday showed job openings dropped to the lowest level since the start of 2021, while the number of layoffs picked up in July. The vacancies data, combined with a fifth month of contracting manufacturing activity, illustrate softer economic growth.
The ISM survey precedes government data on Friday that is forecast to show a moderately faster pace of payrolls growth in August after one of the weakest gains since the pandemic. Even with the expected pickup, the three-month average gain would be the smallest since 2021.
The ISM’s service business activity index — which parallels the group’s factory output gauge — expanded at a slower pace while new orders expanded only slightly faster than a month earlier.
“Slow-to-moderate growth was cited across many industries, while ongoing high costs and interest-rate pressures were often mentioned as negatively impacting business performance and driving softness in sales and traffic,” Steve Miller, chair of the ISM Services Business Survey Committee, said in a statement.
Ten industries reported growth in August, led by entertainment and recreation, mining and transportation and warehousing. Seven sectors indicated a decrease, including retail trade, construction and accommodation and food services.
Select ISM Industry Comments
“Generally, business is good. However, there are concerns of slowing foot traffic at restaurants and other venues where our products are sold.” - Agriculture, Forestry, Fishing & Hunting
“Housing market continues to be dampened by higher borrowing costs. All segments of the industry are affected.” - Construction
“Activity is increasing.” - Finance & Insurance
“Business continues to be strong.” - Health Care & Social Assistance
“Overall business is improving.” - Information
“Hiring of employees, contractors and consultants continues to decline as companies look to control costs during a period of economic and political uncertainty. Employee layoffs continue across a broad range of companies and industries.” - Management of Companies & Support Services
“Business has slowed, and it is harder than ever to find talent, but less jobs available as well.” - Professional, Scientific & Technical Services
“High food costs are impacting customer demand, and weak sales performance has resulted in negative growth overall. Business activity is stable, and supplier costs are generally flat.” - Wholesale Trade
“All of the numbers are indicating a fairly smooth low growth — I don’t want to say anemic growth — but certainly a low growth in comparison to previous years,” Miller said on a call with reporters.
The report also showed inventories grew in August after shrinking a month earlier, and service providers continued to view their stockpiles as too high.
A gauge of prices paid by service providers edged up to 57.3 in August, a three-month high and in line with the average over the past year.
--With assistance from Mark Niquette.
(Adds comment from ISM’s Miller. A previous version corrected historical reference on change in order backlogs)
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