Service sector index eases from historic highs, construction spending posts surprise increase

Key Points
  • The Institute for Supply Management's index was slightly higher than expected in October at 58.7.
  • A reading above 50 for the index indicates expansion in the service sector, and a reading below 50 signals contraction.
  • At the same time, U.S. construction spending unexpectedly rose in September.
Workers prepare gas turbine parts for installation at the General Electric energy plant in Greenville, South Carolina.
Luke Sharrett | Bloomberg | Getty Images

Manufacturing economic activity eased in October after two months of momentum.

ISM manufacturing index hits 58.7 in October; construction spending up 0.3 percent in September

The Institute for Supply Management's index registered 58.7 in October, slightly better than the 58.6 expected from economists polled by Reuters. That represents a decline from September's 59.8, which was the highest reading for the service sector index since August 2005, according to ISM.

A reading above 50 for the index indicates expansion in the service sector, and a reading below 50 signals contraction.

Manufacturing and labor strength likely keep the Federal Reserve on track to increase interest rates in December. The U.S. central bank is not expected to raise rates when policymakers conclude a two-day meeting later on Wednesday.

September's jump in the index was driven by supply chain disruptions, especially in the chemical products sector. The supply bottlenecks, which also pushed up prices of raw materials, resulted in a longer delivery times.

Construction spending

U.S. construction spending unexpectedly rose in September as a surge in public construction
outlays offset the third straight monthly decline in investment in private projects.

The Commerce Department said on Wednesday that construction spending increased 0.3 percent to $1.22 trillion. But August's construction outlays were revised down to show a 0.1 percent gain instead of the previously reported 0.5 percent rise.

Economists polled by Reuters had forecast construction spending unchanged in September. Construction spending increased 2.0 percent on a year-on-year basis.

Robert Nickelsberg | Getty Images

In September, investment on private construction projects fell 0.4 percent after slipping 0.1 percent in August. It was the third straight monthly drop in private construction outlays and reflected a 0.8 percent decline in spending on private nonresidential projects. Spending on nonresidential projects in September was the lowest since April 2016.

Spending on nonresidential structures has now declined for four consecutive months. Spending on oil drilling has been slowing in recent months amid moderate gains in oil prices and ample crude supplies. Spending on residential structures was unchanged in September.

The data could impact the government's gross domestic product estimate for the third quarter published last week. The government's advance estimate put economic growth at a 3.0 percent annualized rate in the July-September quarter, with both residential and nonresident structures subtracting from output.

Reuters contributed to this report.