By Maria Martinez

U.S. service sector activity contracted in September for a third straight month as inflation and rising interest rates hit demand, data from a purchasing managers survey showed Wednesday.

The S&P Global U.S. Services PMI rose to 49.3 in September from 43.7 in August, slightly above the preliminary reading of 49.2. This signals a much slower contraction in business activity than in the previous month, the report said. Readings below 50.0 mean a contraction in activity.

The drop in output was only marginal overall, as firms noted that improved demand conditions led to a weaker decline, the report said. New orders returned to growth, with domestic sales supporting the upturn, while new export business fell further, S&P Global said.

"Driving this improvement is a cooling of inflationary pressures in manufacturing supply chains, which is in turn alleviating cost growth for goods and energy in both manufacturing and service sectors, helping stimulate demand and allaying some concerns about the economic outlook," said Chris Williamson, chief business economist at S&P Global.

Despite easing, inflationary pressures in terms of firms' costs and selling prices for goods and services remain elevated, Mr. Williamson said.

The rate of job creation softened to the slowest in 2022 to date as challenges finding and retaining staff persisted, S&P Global said. Hopes of greater client demand, a peaking of inflation and investment in new products drove business expectations for the year-ahead to the highest for four months.

The S&P Global U.S. Composite PMI came in at 49.5 in September, up from 44.6 in August, signaling a modest contraction in private sector economic activity, the data showed.

Write to Maria Martinez at maria.martinez@wsj.com

(END) Dow Jones Newswires

October 05, 2022 10:17 ET (14:17 GMT)