By Lucia Mutikani
WASHINGTON (Reuters) - U.S. 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 U.S.-based employers dropped 31 percent to a five-month low last month. That underscored the labor 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 signaled 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 U.S. economy.
Services industries reported a moderation in new orders and employment, as well as demand for exports.
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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 Labor Department said on Thursday that initial claims for state unemployment benefits increased 7,000 to a seasonally adjusted 265,000 for the week ended Oct. 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 labor market. That is the longest stretch since 1970, when the labor market was much smaller.
"U.S. jobless claims remain supportive of labor market improvement," said Michael Gapen, chief economist at Barclays in New York.
The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, increased 4,750 to 257,750 last week.
U.S. stocks were mixed in mid-morning trading, while prices for U.S. Treasuries fell. The dollar was weaker against a basket of currencies.
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 U.S. central bank is widely expected to increase its overnight benchmark interest rate in December, but the decision could depend on the outcome of the Nov. 8 U.S. presidential election.
The tightening of the race between Democratic candidate Hillary Clinton and her Republican rival Donald Trump has rattled financial markets. The Fed raised borrowing costs last December for the first time in nearly a decade.
LAYOFFS DECLINE
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.
"This low monthly total is most likely due to the fact the economy is relatively healthy and that most employers don't see those conditions changing in the next three to six months," said John Challenger, chief executive officer of Challenger, Gray & Christmas.
Job cuts in October were concentrated in the computer industry, where employers announced 4,792 layoffs. Most of the computer job cuts came from HP Inc, which laid off another 4,000 workers last month. That was in addition to the 30,000 job cuts the company announced in 2015.
In another report, the Labor 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 labor costs, the price of labor per single unit ofoutput, 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.
(Reporting by Lucia Mutikani; Editing by Paul Simao)