U.S. economy speeds up as ISM survey hits 1 1/2-year high. Businesses aren't gung-ho, though.

By Jeffry Bartash

ISM service index climbs to 54.9% from 51.5%

The numbers: The service side of the economy grew in September at the fastest pace in a year and a half, a new survey found, suggesting the U.S. is in no danger of recession.

An index of service businesses climbed to 54.9% last month from 51.5% in August, the Institute for Supply Management said. That's the highest level since February 2023.

Numbers over 50% are viewed as positive for the economy.

Economists polled by The Wall Street Journal had forecast a reading of 51.8%. Service companies such as banks, retailers, hotels and airlines employ most Americans.

A similar ISM survey of manufacturers, however, was in negative territory for the sixth month in a row. Manufacturers have been in a slump of sorts for more than a year because of high interest rates.

Key details:

-- The new-orders index jumped 6.4 points to 59.4% - also the highest level since early 2023.

-- The production gauge rose 6.6 points to 59.9%.

-- The employment barometer slipped 2.1 points to 48.1%, reflecting a "low hiring-low hiring" labor market.

-- The prices-paid index, a measure of inflation, rose 2.1 points to 59.4% and indicated the elevated cost of supplies is still an ongoing problem.

Big picture: The services side of the economy has powered the economy for the past few years. And it's still doing so despite 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 cutting interest rates.

Lower borrowing costs could boost sales, encourage more hiring and spur the economy.

Looking ahead: Executives were cautiously optimistic the economy will improve now that the Federal Reserve is cutting interest rates. Yet they also expressed concern about the new port strike and the pending U.S. election.

""There is concern over the economy, and it feels like a lot of people are waiting to see which way the election goes in November before making a solid plan for 2025 and beyond," said an executive at a professional company.

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

-Jeffry Bartash

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10-03-24 1046ET

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