U.S. service providers reported a further slowdown in business activity growth in October, as new business stagnated and export demand dropped further.
The marginal expansion was the weakest since early 2016 and resulted in the sharpest decrease in workforce numbers since December 2009.
Nonetheless, firms noted a slightly more upbeat outlook for the year ahead.
Although input prices rose for the first time since July, the increase was only marginal and output charges were subsequently broadly unchanged.
The seasonally adjusted final IHS Markit US Services Business Activity Index registered 50.6 in October, dropping slightly from 50.9 in September and downwardly revised from the flash figure of 51.0.
The rate of increase in business activity was only marginal overall and the slowest since the current expansion began in February 2016.
Growth was weighed on by lacklustre client demand and greater hesitancy among customers to place orders.
Concurrently, the New Business Index posted below the 50.0 neutral mark for the first time since data collection began a decade ago, signalling a marginal drop new order levels.
Companies stated that the postponement of orders placed by clients and weaker demand underpinned the broad stagnation.
Meanwhile, new export orders fell for the third month running.
The rate of contraction eased slightly from September's recent record, but was still the second-fastest fall in the series' history (exports data have been collected as a stand-alone series since September 2014).
Subsequently, service providers registered a faster decline in employment in October as voluntary leavers were not replaced and firms struggled to fill outstanding vacancies.
The rate of contraction was solid overall and the sharpest for almost a decade.
At the same time, backlogs of work fell for the third month running as service providers noted that weaker client demand allowed firms to process incoming new orders in a more timely manner.
On the price front, higher supplier and wage costs reportedly drove up input prices at service sector firms in October.
The respective seasonally adjusted index posted above the 50.0 neutral mark for the first time since July to signal an increase in cost burdens.
That said, the rise was only marginal overall.
In response to the rise in cost pressures, service providers kept selling prices broadly unchanged, following two monthly decreases.
Some firms noted that greater cost burdens were partially passed on to clients.
Finally, service providers were slightly more upbeat regarding the output outlook for the year ahead in October.
The degree of confidence picked up to reach a four-month high.
Anecdotal evidence attributed stronger positive sentiment to the development of new service lines and low interest rates.
That said, the level of optimism was well below the long-run series trend. ■