Disappointing services reading triggers fears of economic slowdown

The services sector expanded slower than expected in September, according to the ISM Non-Manufacturing Index released Thursday, amid fears of an impending economic recession that have plagued markets at the start of the fourth quarter.

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The closely watched metric came in at 52.6, missing Dow Jones' economist expectations of 55.3 -- a healthy expansion rate, but down from August's 56.4.

Although the number remained above 50 -- anything below that signals contraction -- the pace of growth in the service sector is cooling, another sign the economy is slowing down. It was the worst reading since August 2016.

During a call with reporters, ISM officials blamed the stumble on the U.S.-China trade war, a shrinking labor pool and the overall direction of the global economy.

Following the report, and a slew of weak economic data this week, traders were pricing in a 92.5 percent chance of a third rate cut by the Federal Reserve at the end of October.

Thursday's disappointing data came one day after the worst manufacturing reading in more than a decade reignited fears that the U.S. economy is headed towards a recession.

The ISM September Manufacturing Index fell to 47.8 last month, the second straight month of contraction.