Services sector growth slows in August but still positive

By Martin Crutsinger
AP Economics Writer

WASHINGTON (AP) — Growth in the U.S. services sector, where most Americans work, slowed in August after big rebounds in June and July, indicating lingering problems stemming from the coronavirus pandemic.

The Institute for Supply Management reported last Thursday that its index of activity in the services activity showed a reading of 56.9% in August, down 1.2 percentage-points from the July reading of 58.1.

Any reading above 50 indicates growth in the services sector. By that measure, the services sector has shown growth for three straight months after taking a big hit in the spring when the country shut down to combat the coronavirus.

Business activity and new orders continued to expand in August but at a slower pace than the July surge. The index measuring employment contracted for a sixth straight month, a sign of the millions of workers who have been laid off or furloughed in service industries such as restaurants.

Anthony Nieves, chairman of the ISM services survey committee, said that many firms are facing problems that they remain under restrictions limiting how many customers they can serve.

“Even many of the businesses that are reopening are not at full capacity,” he said. “If they are not at 100% capacity, they are not bringing back all of their workers.”

Kathy Bostjancic, chief U.S. financial economist at Oxford Economics said, “We expect the pandemic to continue to constrain the recovery of service activity to a low growth mode.”

The services sector had been growing for 122 consecutive months before it fell into contraction territory in April and May as widespread shutdowns took hold.

For August, 15 service industries showed growth, led by arts and entertainment and recreation, which includes movie theaters and theme parks, and health care. The three industries reporting decreases were mining, which includes oil and gas production, information services and other services, a catch-all category which covers businesses including funeral homes.

While many respondents were upbeat now that their businesses are open again, others noted the challenges they are still facing as virus cases jumped in parts of the country.

“We are significantly down from the pre-COVID-19 level. While month over month business activity is picking up, the pace is very slow and very slight,” said one survey respondent in wholesale trade.

A commentator in the finance and insurance area said, “Revenue challenges for our customers still remain a primary challenge.”