Economy grew again in August, ISM finds, but momentum faded

By Jeffry Bartash

ISM service index edges up to 51.5% from 51.4%

The numbers: The service side of the U.S. economy grew again in August, but momentum faded in response to higher interest rates, slower sales and less customer traffic, a new survey found.

An index of service businesses rose a hair to 51.5% last month from 51.4% in July, the Institute for Supply Management said. Numbers over 50% are viewed as positive for the economy.

Still, the index has been stuck in a narrow range since the spring in a sign the economy has softened.

"Slow-to-moderate growth was cited across many industries," said Steve Miller, chairman of the survey.

Economists polled by The Wall Street Journal had forecast a reading of 51.0%.

A similar ISM survey of American manufacturers was more negative. It fell for the fifth month in a row and suggested a recovery is unlikely until after the presidential election.

Manufacturers have been hurt more by high borrowing costs than service-oriented companies.

Key details:

The new-orders index rose 0.6 points to 53.0%.The production gauge fell 1.2 points to 53.3%.The employment barometer slipped 0.9 points to 50.2%, a relatively weak result.The prices-paid index, a measure of inflation, increased slightly to 57.3%.

Big picture: The services side of the economy has powered the U.S. for the past few years, but it's also feeling the strain of high interest rates and a surge in inflation over the past few years.

The good news is the annual rate of inflation has returned close to low prepandemic levels and the Federal Reserve is primed to start cutting interest rates in a few weeks. Lower borrowing costs could boost sales, encourage more hiring and spur the economy.

Looking ahead: "Demand for services is slowly fading but new orders and production have remained in expansion into the third quarter," said Nationwide senior economist Ben Ayers.

"Still, there are signs that consumers are increasingly cutting back heading into the fall, which could push services closer to contraction later this year."

Market reaction: The Dow Jones Industrial Average and S&P 500 were mixed in Thursday trades.

-Jeffry Bartash

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09-05-24 1045ET

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