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U.S. service-sector growth slowed in September

The economy’s services sector grew in September, but at a much slower pace than in August, amid a sharp rise in energy costs, according to a survey of business managers released on Wednesday.
/ Source: The Associated Press

The economy’s services sector grew in September, but at a much slower pace than in August, amid a sharp rise in energy costs, according to a survey of business managers released on Wednesday.

The Institute of Supply Management, which conducted the survey, said its non-manufacturing business activity index was at 53.3 percent in September, down from August’s reading of 65 percent. The group’s index of prices paid rose 14.3 points to 81.4 percent.

The survey, whose findings chipped away at broader stock indexes on Wall Street at midmorning Wednesday, found that many business executives are concerned about the continuing rise in oil and gas prices after Hurricane Katrina and about the toll rising energy costs will 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.”

“Many members’ comments expressed concern about the continuing rise in oil and gas prices,” Ralph Kauffman, chair of the ISM’s non-manufacturing business survey committee, said in a statement.

Zukowski added that it may be another four or five months before the higher prices are passed on to consumers. “This gives you an idea of why they Fed raised rates in September,” he said, referring to the central bank’s eleventh consecutive rate increase announced last month.

Dallas Federal Reserve Bank President Robert Fisher warned Tuesday inflation was nearing the high end of the Fed’s comfort zone — a clear signal that the Fed’s short term interest rate hikes would continue.

The ISM’s new export orders index fell 8.5 points to 55 percent, while its employment index dropped 4.7 points to 54.9 percent.

According to the ISM, industries experiencing growth included construction, communication, mining, insurance, retail trade as well as utilities.

Industries showing a drop in activity last month included real estate, entertainment, agriculture, business services and finance and banking, the ISM said.