October 27, 2014 / 2:05 PM / 5 years ago

U.S. services sector growth slows, pending home sales miss forecast

WASHINGTON (Reuters) - U.S. services sector activity dipped to a six-month low in October, while manufacturing output in Texas dipped, pointing to some moderation in economic growth early in the fourth quarter.

A real estate sign advertising a home for sale is pictured in Vienna, Virginia, outside of Washington, October 20, 2014. REUTERS/Larry Downing

Other data on Monday showed contracts to buy previously owned homes rebounded less than expected in September, an indication that the housing recovery remains gradual.

Analysts were little worried by the data and said the economy was fundamentally solid even with some anticipated cooling of growth in the fourth quarter.

“Home sales are probably not going to do much but business activity in general is still pointing to a solid underpinning for the U.S. economy,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York.

Financial data firm Markit said its preliminary or ‘flash’ services sector purchasing managers index slipped to 57.3 last month, the lowest reading since April, from 58.9 in September. A reading above 50 signals expansion in the vast services sector.

The index, which was dragged down by a fall in a new business sub-index, has declined for four straight months.

“The October readings indicate that the pace of economic growth looks set to moderate in the fourth quarter, down to perhaps 2.5 percent,” said Chris Williamson, chief economist at Markit in London.

The government is expected to report on Thursday that the U.S. economy expanded at a 3.0 percent annual pace in the third quarter, according to a Reuters survey of economists.

Separately, the Federal Reserve Bank of Dallas said its production index, which measures the state of manufacturing conditions in Texas, fell to 13.7 this month from 17.6 in September. The new orders sub-index, however, doubled and hit a six-month high. Companies were also upbeat about the future.


In a separate report, the National Association of Realtors said its pending home sales index, based on contracts signed in September, rose 0.3 percent after falling 1.0 percent in August.

These contracts usually translate into sales after a month or two. The gain last month was below Wall Street’s consensus forecast of a 0.5 percent rise. Contracts were up 1.0 percent compared to September last year.

“It’s hard to tell whether sales are genuinely improving at a slow pace, or whether they are just moving sideways,” said Guy Berger, an economist at RBS in Stamford, Connecticut. “Still, the fall in mortgage rates over the past month and ongoing labor market improvement should provide a tailwind going forward.”

Mortgage rates have declined in tandem with a sharp fall in U.S. Treasury debt US10YT=RR yields as slowing global growth and a sharp sell-off in international stock markets this month prompted traders to push back expectations for an interest rate increase by the Federal Reserve. Last week, the 30-year fixed mortgage rate reached its lowest level since June of last year.

Reporting by Lucia Mutikani in Washington, D.C., additional reporting by Caroline Valetkevitch in New York; Editing by Paul Simao and James Dalgleish

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