US services sector activity cools slightly in October; inflation remains elevated

WASHINGTON, Nov 4 (Reuters) - US services sector ‌growth slowed marginally ​in October ​amid a moderation in new orders, but supply chains remained strained, keeping prices for inputs elevated.

The Institute for Supply Management said on Wednesday its nonmanufacturing Purchasing Managers' Index ‌dipped to 54.5 last month from 54.9 in September. A reading above 50 indicates ⁠growth in the services sector, which accounts for more than two-thirds of US economic activity. Economists polled by Reuters had forecast ‌the PMI little changed at 54.8.

The ‌PMI suggested the economy started the fourth quarter on solid footing, though economists expect a slowdown in activity, with consumer spending expected to pull back after back-to-back quarters of robust growth. Spending ​is seen in part curbed by high inflation, which is eroding household purchasing power.

Income at the disposal of households, after adjusting for inflation and taxes, fell in September after being unchanged in ⁠August. The saving rate is at a four-year low of 3.8%.

The survey's measure of new orders received by services businesses decreased to 55.9 ​last month from 59.8 in September. Delivery performance by suppliers deteriorated further against the backdrop of the ongoing US-Israel war with Iran and tariffs on imports. ​The Middle East conflict, now in its ninth month, ‌has boosted energy prices and caused shortages of commodities that are shipped through the Strait of Hormuz.

The survey's measure of supplier deliveries jumped to 56.7 from 53.2 ⁠in September. A reading above 50 indicates slower deliveries. Deliveries have slowed for 23 consecutive months, keeping input prices high.

The survey's measure of prices paid by businesses for inputs eased to a still-high 73.0 last month from 74.0 in ⁠September. The ISM on Monday reported a slight moderation in prices paid for inputs by manufacturers in October.

Economists expect inflation ​to continue to run above the Federal Reserve's 2% target into 2027. The Fed last Wednesday left its benchmark overnight interest rate within the 3.75%-4.00% range while acknowledging that inflation "remains elevated." Economists expect the US central bank to ‌raise borrowing costs in December.

The ISM survey showed a marginal increase in services sector employment, aligning with economists' expectations for moderate growth in nonfarm payrolls in ‌October. The survey's measure of services employment rose to 51.4 from 50.1 in September.

The government's closely watched employment report ⁠on Friday is likely to show payrolls ‌advanced by 65,000 in October ​after increasing 29,000 in September, according to a Reuters survey of economists. The unemployment rate is forecast to have been unchanged at 4.2%.

(Reporting By Lucia Mutikani; Editing by ‌Chizu Nomiyama )

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