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The ISM said its index of activity in the service sector edged down to 50.6 in October from 50.9 in September, with a reading above 50 indicating growth in the sector. The decrease by the index came as a surprise to economists, who had expected the index to rise to 51.5.
Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, said, "Respondents' comments remain mixed and are mostly cautious about business conditions and the overall economy."
The report showed that the production index edged up to 55.2 in October from 55.1 in September, while the new orders index rose to 55.6 from 54.2 in the previous month.
At the same time, the employment index fell to 41.1 in October from 44.3 in September, indicating a faster pace of contraction in employment in the service sector. With the decrease, the employment index fell to its lowest level since May.
The weakness in service sector employment is in stark contrast to the ISM's reading on employment in the manufacturing sector, which rose to 53.1 from 46.2 in the previous month.
Rob Carnell, chief international economist at ING, said, "With the non-manufacturing sector accounting for the lion's share of the labor market (86% is in the non-goods producing industries), it is this index, not the manufacturing index, which will drive Friday's payrolls figure."
Earlier in the day, Automatic Data Processing, Inc. (ADP | Quote | Chart | News | PowerRating) released a report showing a continued decrease in private sector employment in the month of October, reflecting weakness in both the service-providing and goods-producing sectors.
ADP said the service-providing sector lost 86,000 jobs, while the goods-producing sector cut 117,000 jobs, including 65,000 jobs in the manufacturing sector.
With regard to inflation, the ISM said that the prices index jumped to 53.0 in October from 48.8 in the previous month, suggesting an increase in prices.
On Monday, the ISM released its report on manufacturing activity in the month of October, showing that activity expanded for the third consecutive month amid a jump in production and employment.
The ISM said its index of activity in the manufacturing sector rose to 55.7 in October from 52.6 in September, with a reading above 50 indicating growth in the sector. Economists had been expecting a more modest increase by the index to a reading of 53.0.
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