U.S. Services Grow More Than Expected in September

Growth in the massive U.S. services sector rose more than expected in September, a key index showed Tuesday.

The Institute of Supply Management said its non-manufacturing index rose to 53.2%, the ninth consecutive month of growth.

An index reading above 50% indicates expansion in the key sector, which accounts for the bulk of overall U.S. economic output.

Most analysts had expected the index, based on a survey of the nation's purchasing and supply executives, would rise slightly to 51.8%, from 51.5% in August.

"Respondents' comments continue to be mixed about business conditions, with a slight majority reflecting optimism," Anthony Nieves, head of the services survey committee, said in a statement.

The services sector was holding up better than manufacturing activity, a key driver of the economy's recovery from the worst recession in decades.

Last week the ISM reported its purchasing managers index (PMI) on economic activity in the manufacturing sector rose to 54.4% in September, the 14th consecutive month of expansion but a slowdown from a 56.3% pace in August.

Still, the acceleration in services growth in September still remained weaker than the 55.4% index reading in the March-May period.

"While the gain points to a pickup in service-sector growth after a brief slump, the composite index is still below the average in the first half of the year and is consistent with mediocre real GDP [gross domestic product] growth of around 2%," said Aaron Smith at Moody's Analytics.

The last time the services sector contracted was late last year, when the index fell below 50% in November and December.

The latest ISM report signaled improvement in the jobs market, ahead of the government's highly anticipated September employment data on Friday.

The sub-index on employment rose to 50.2%, the third increase in the past five months and a sharp rebound from the August contraction reading of 48.2%.

Strong gains were also recorded in the sub-indexes of new orders and supplier deliveries, but business activity weakened, the institute said.

"The rise in both new orders and employment components are good news, but the new decrease in the business activity index still suggests that a slowing down in activity is now taking shape in the non-manufacturing sector," said Julien Thomas at Natixis.