U.S. Service Sector Posts Slide in Index
The economy received another inflation warning Wednesday, when a survey of industry executives showed that energy costs drove prices higher in September while the service sector slowed. The report reinforced expectations that the Federal Reserve would continue to raise rates as the economy struggled with rising fuel costs aggravated by Hurricane Katrina.
The Institute for Supply Management, which conducted the survey, said its non-manufacturing business activity index was at 53.3 in September, down from August’s reading of 65. The group’s index of prices paid rose 14.3 points to 81.4, the highest level and the biggest jump for the index in the eight-year history of the report.
The survey found that many business executives were concerned about the continuing rise in oil and gas prices after Hurricane Katrina and about the toll that rising energy costs would take on the economy.
“That is the $64,000 question: if and when manufacturers and businesses decide they have to pass through these rising prices to consumers,” said Jerry Zukowski, deputy chief economist at Nomura Securities International Inc. “A lot of it is energy. We are clearly not out of the woods in terms of these price pressures.”
Although the survey uncovered worries about energy prices, economists cautioned that some of its findings might have been exaggerated by the major storm.
“These numbers were highly impacted if not distorted by Hurricane Katrina,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors.
The supply management survey found that commodities hit by price increases included aircraft fuel, beef, building materials, copper and diesel fuel.
The Institute for Supply Management’s new export orders index fell 8.5 points to 55, and its employment index dropped 4.7 points to 54.9.
According to the institute, industries experiencing growth included construction, communication, mining, insurance, retail trade and utilities.
Industries showing a drop in activity last month included real estate, entertainment, agriculture, business services and finance and banking.
