Index of U.S. Services Drops to 16-Month Low

An index of U.S. services dropped to a 16-month low in September, suggesting that high energy prices might limit the economic expansion.

The Institute for Supply Management said Tuesday that its gauge of non-manufacturing industries such as banking, construction and retailing fell to 56.7, the lowest reading since May 2003, from 58.2 in August. The gauge has still shown expansion, marked by readings higher than 50, for 18 straight months.

Energy costs, hurricanes and transportation backlogs damped executives’ outlook last month, according to the survey, which covers businesses accounting for 85% of the economy. But an increase in the purchasing managers’ index of hiring suggests the economy is growing fast enough for a government report in three days to show that payrolls expanded last month.

“The data show some cooling in recent months, although the levels are still consistent with fairly strong growth,” said Maury Harris, chief economist at UBS Securities in Stamford, Conn. “The message is that growth is off its peak, but still solid.”

The survey’s employment index rose to 54.6, the highest since June, from 52.5 in August. Of the executives surveyed, 19% said they boosted hiring during the month, up from 18% in August, while those that reduced staff fell to 12% from 13%.

The Labor Department is expected to report Friday that the U.S. added 150,000 workers last month after a gain of 144,000 in August, an acceleration from a midyear lull, according to a median forecast of economists.

The survey’s index of new orders was 58.5 last month, down slightly from 58.6 in August. The measure of export orders rose to 55.5 from 55.0. Construction, entertainment and wholesale companies were among those reporting export gains.

The index of prices paid, a measure of costs for purchased materials and services, fell to 67.1 last month, the lowest since March, from 70 in August.