Service Sector Activity Falls To 6-Month Low, Modest Gain In Existing Home Sales

U.S. service sector activity dipped to a six-month low in October, while another report on Monday showed existing home sales gained less-than-expected in September.

The latest economic news suggested a tempering down in economic growth early in the fourth quarter, and housing data indicated that the housing market recovery continues to struggle.

Financial data firm Markit said its preliminary or “flash” services sector Purchasing Managers Index fell to 57.3 last month, which is the lowest reading since April and down from 58.9 in September. The index was weighed down by a drop in the new business sub-index, which fell to its lowest level in three months.

A reading above 50 signals expansion in the vast services sector.

“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, the chief economist at Markit in London. “We should not lose sight of the fact that the pace of growth nevertheless remains robust, having merely eased from very strong rates in prior months.”

Williamson is referring to an expected report from the U.S. government due Thursday that will show the economy expanded at a 3.0 percent annual pace in the third quarter, according to a Reuters survey of economists.

Meanwhile, 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. 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.”

However, the 30-year fixed mortgage rate fell last week to its lowest level since June of last year.