The economy lost steam in September, data showed Wednesday, bolstering the view that the Federal Reserve was unlikely to raise interest rates again and could lower them next year to reenergize the economy.
Growth of the U.S. service sector slowed to its weakest pace in more than three years in September, while private sector data suggested that companies were hiring at a steady rate last month and a report on factories showed orders were stagnant in August.
The Institute for Supply Management's non-manufacturing index, which measures the services sector, fell to 52.9 in September from 57.0 in August.
It was the lowest reading since April 2003, when business sentiment was depressed by the start of the Iraq war.
The drop in the non-manufacturing index "tells us what we already knew about the economy, or at least the services side of the economy -- that generally it is losing momentum as we move into the fourth quarter," said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, N.Y.
The consensus forecast of economists was for a reading of 56.0 in September. Readings above 50 indicate expansion, while levels below 50 point to slowing.
The service sector makes up about 80% of U.S. economic activity. The Institute for Supply Management said this week that expansion in the manufacturing sector also slowed last month.
The ADP National Employment Report said private employers added 78,000 jobs in September, below the 107,000 gain in August and Reuters' median forecast of a 110,000 rise.
Automatic Data Processing Inc.'s report was the latest indicator to suggest that hirings were slowing below their trend. In contrast, the institute's component on services employment rose to 53.6 from 51.4 in August.
Before the ADP report, traders showed a more upbeat view on the labor market, betting in a derivatives auction that job growth held steady last month from August.
The results of the derivatives auction held by Goldman Sachs, interdealer broker ICAP and the Chicago Mercantile Exchange suggested that the median expectation among traders for September nonfarm payrolls was for a 124,380 increase, slightly below the 128,000 gain reported by the government in August and in line with economists' forecast for a 125,000 increase.
The government's September payrolls report will be released Friday.
Other data were mixed Wednesday.
The Commerce Department said factory orders were unchanged in August after a downwardly revised 1% decline in July. Analysts surveyed by Reuters had expected a 0.2% drop. But orders were down after excluding demand for transportation equipment.
The housing market showed signs of stabilizing on a drop in mortgage rates. The Mortgage Bankers Assn.'s index on loan applications to buy homes rose 7.6% to 404.6 last week, its highest reading since July.