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Business activity growth in U.S. service sector regains momentum in October

Staff Writer |
The U.S. service sector reported a strong expansion in business activity in October.

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The rate of growth rebounded from September’s weatherrelated weakness, but was also buoyed by a sharp rise in new business.

Capacity was often reported to have come under some strain, however, and difficulties finding suitable candidates were partly to blame for the rate of job creation easing to a ninemonth low.

Meanwhile, price pressures intensified, with rates of both input cost and output charge inflation accelerating.

The seasonally adjusted final IHS Markit U.S.

Services Business Activity Index registered 54.8 in October, up from September’s recent low of 53.5 and broadly in line with the earlier ‘flash’ reading of 54.7.

Output growth regained momentum to run just below the average for 2018 so far.

Service providers commonly linked the rise in business activity to increased new business and a pick up in demand after inclement weather in September.

A sharp expansion in new business drove overall output growth, with the pace of increase above the long-run series trend and close to rates seen earlier in the year.

Survey responses indicated that the upturn stemmed from more favourable demand conditions and new product launches.

In line with a steep rise in new business, staffing levels rose further in October.

That said, the rate of job creation lost some momentum and eased to a nine-month low.

Some respondents stated that difficulties finding suitable candidates had limited employment growth.

Therefore, capacity pressures remained, with backlogs rising further.

Business confidence meanwhile recovered from September’s recent low in October, with the level of optimism improving to a five-month high.

October data saw a further sharp rise in input costs paid by service providers.

Moreover, the rate of input price inflation quickened to the fastest in just over five years.

A number of firms noted that greater input prices, including wages, and higher borrowing costs were behind the third acceleration in input cost inflation in as many months.

Firms often sought to pass higher expenses on to clients through greater output charges, facilitated by the recent strength of demand.

The rate of charge inflation was the second-fastest in the nine-year series history.

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