US services sector slows; jobless claims rise

US services industry activity cooled in October amid a slowdown in new orders and hiring, suggesting a moderation in economic growth early in the fourth quarter.
Other data on Thursday showed planned job cuts by US-based employers dropped 31 percent to a five-month low last month. That underscored the labour market's healthy fundamentals, though more Americans filed for unemployment benefits last week.
The mixed reports came a day after the Federal Reserve offered a fairly upbeat assessment of the economy and signalled it could raise interest rates next month.
The Institute for Supply Management (ISM) said its non-manufacturing index fell 2.3 percentage points to a reading of 54.8 percent in October. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of the US economy.
Services industries reported a moderation in new orders and employment, as well as demand for exports.
The new orders sub-index dropped 2.3 percentage points to 57.7, while a measure of services sector employment decreased 4.1 percentage points to 53.1. A sub-index for export orders fell 1.0 percentage point last month.
The economy grew at a 2.9 percent pace in the third quarter after expanding at a 1.4 percent rate in the April-June period.
Separately, the Labour Department said on Thursday that initial claims for state unemployment benefits increased 7,000 to a seasonally adjusted 265,000 for the week ended October 29, the highest level since early August.
It was still the 87th straight week that claims remained below 300,000, a threshold associated with a healthy labour market. That is the longest stretch since 1970, when the labour market was much smaller.
"US jobless claims remain supportive of labour market improvement," said Michael Gapen, chief economist at Barclays in New York.
The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, increased 4,750 to 257,750 last week.
The Fed on Wednesday held interest rates steady but said its monetary policy-setting committee "judges that the case for an increase in the federal funds rate has continued to strengthen."
The US central bank is widely expected to increase its overnight benchmark interest rate in December, but the decision could depend on the outcome of the November 8 US presidential election.
Last week's claims report has no bearing on October's employment report, which is scheduled for release on Friday, as it falls outside the survey period.
According to a Reuters survey of economists, nonfarm payrolls likely increased by 175,000 last month after rising by 151,000 in September. The unemployment rate is seen slipping one-tenth of a percentage point to 4.9 percent.
Expectations of an upbeat October employment report were supported by a report on Thursday from global outplacement consultancy Challenger, Gray & Christmas showing employers announced 30,740 job cuts last month, down from 44,324 in September.
In another report, the Labour Department said nonfarm productivity, which measures hourly output per worker, rose at a 3.1 percent annual rate. The increase ended three straight quarters of decline. Productivity fell at a 0.2 percent rate in the second quarter.
Despite the rise, the trend in productivity remains weak.
Productivity was unchanged compared to the third quarter of 2015. Unit labour costs, the price of labour per single unit of output, rose at a 0.3 percent pace in the third quarter after increasing at a 3.9 percent rate in the second quarter.
Another report by the Commerce Department showed new orders for manufactured goods increased 0.3 percent in September after rising 0.4 percent gain in August. Unfilled orders at factories, however, fell for a fourth straight month.
Manufacturing, which accounts for about 12 percent of the economy, has been hurt by a strong dollar and weak global demand. Production has also been undermined by the collapse in oil drilling activity in the wake of the plunge in oil prices.