By Lucia Mutikani
WASHINGTON (Reuters) – U.S. business activity cooled in September, with gains at factories offset by a retreat at services industries, suggesting a loss of momentum in the economy as the third quarter draws to a close and COVID-19 lingers.
The economy’s recovery from the pandemic recession is losing speed as government financial help to businesses and the unemployed dries up. Federal Reserve Chair Jerome Powell told lawmakers on Wednesday that Congress and the U.S. central bank needed to remain focused on supporting the recovery.
“We need to stay with it … the recovery will go faster if there is support coming both from Congress and the Fed,” Powell said.
Data firm IHS Markit said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to a reading of 54.4 this month from 54.6 in August. A reading above 50 indicates growth in private sector output. Though the private sector continues to expand, this month’s dip in the index was in line with views that the economy’s momentum was ebbing.
Gross domestic product is expected to rebound at as much as a record 32% annualized rate in the third quarter after tumbling at a 31.7% rate in the April-June period, the worst performance since the government started keeping records in 1947.
The coronavirus crisis wiped out more than five years of growth, and economists are calling for another aid package from the government to help the fragile recovery. The economy slipped into recession in February.
“The question now turns to whether the economy’s strong performance can be sustained into the fourth quarter,” said Chris Williamson, chief business economist at IHS Markit, noting that the uncertainty over the Nov. 3 presidential election had also risen. “Risks therefore seem tilted to the downside for the coming months, as businesses await clarity with respect to both the path of the pandemic and the election.”
Moderation in business activity was not confined to the United States. Euro zone business growth ground to a halt this month amid a renewed downturn in the dominant services sector, a separate survey from IHS Markit showed on Wednesday.
Six months after the COVID-19 pandemic started in the United States, coronavirus cases remain high, with the death toll in the country exceeding 200,000 on Tuesday – by far the highest number of any nation.
The survey’s services sector flash PMI fell to 54.6 this month from a reading of 55.0 in August. Economists polled by Reuters had forecast a reading of 54.7 this month for the services sector, which accounts for more than two-thirds of the U.S. economy. The services industry has been hardest hit by the virus and remains below its pre-pandemic level.
A measure of service industry employment slipped this month.
In contrast, manufacturing firms signaled an acceleration in activity. The flash manufacturing PMI increased to 53.5 this month from 53.1 in August. Economists had forecast the index for the sector, which accounts for 11% of the economy,