Services
Reuters
The services sector is counting for more of US economy as corporations move manufacturing to cheaper countries, but Thursday’s ISM non-manufacturing report showed a sharp drop in September. The index fell to 52.6 last month from 55.3 in August, reaching its lowest reading in three years. Any reading above 50 signals expansion, while those below 50 hint at sector contraction.
Several of the purchasing managers surveyed blamed tariffs from the US-China trade war for impacting supply chain efficiencies. The increased expenses pressure managers to find other ways to keep margins strong, including passing the extra costs to consumers.
“We are actively pursuing alternate sources for our China-based production. At this point, we have not passed on tariff costs to our customers, but we are evaluating all options,” one respondent said.
IHS Markit’s eurozone-based services index reflected a similar decline in a Thursday release. The metric hit 51.6 in September, down from 53.5 in the prior month and showing the weakest increase in activity since the start of the year.
The continent has suffered significantly from economic contraction in Germany and Italy. Though the pullback began in Germany’s manufacturing sector, the September figures point to the downturn affecting multiple nations and spilling over into service industries as well.
“Yesterday’s WTO ruling against the EU on Airbus lets Trump play ‘trade war’ with a new part of the world,” Stenn Group president Kerstin Braun said.
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