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Business activity growth in U.S. service sector remains sharp in June

Staff Writer |
Robust June survey data indicated that the U.S. service sector enjoyed its strongest quarter for three years.

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The latest rise in output was the second-fastest since April 2015, behind May’s recent high.

The rate of new order growth remained sufficiently strong to encourage the second-highest degree of job creation since September 2015.

The rate of input price inflation meanwhile matched that seen in May and was the joint-fastest since September 2013.

Output charges also increased strongly in response to robust demand.

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 56.5 in June.

Although down slightly from 56.8 in May, the rise in output was the second-fastest since April 2015.

Panellists linked the upturn to greater client demand and the acquisition of new customers.

At 56.0, the average index reading in the second quarter marked the strongest quarterly expansion in three years.

New business received also increased sharply, depite the rate of increase softening to a threemonth low.

The pace of the latest upturn was above the series trend and widely attributed to increased referrals from current clients and favourable market conditions.

Average cost burdens faced by service providers rose sharply in June.

The rate of input price inflation matched that seen in May and was consequently the joint-fastest since September 2013.

Anecdotal evidence largely indicated that higher costs were associated with supplier shortages and recently introduced tariffs, accompanied by widepread reports of higher fuel prices.

Reflecting improved pricing power amid strong demand conditions, average charges rose further in June.

The rate of inflation was one of the fastest in the current 28-month sequence of increase.

A number of panel members noted that higher input costs were partly passed on to clients.

As the upturn in new business continued to outpace that of output, backlogs of work increased solidly.

Although the rate of accumulation eased slightly from May’s recent peak, it was the secondstrongest in over three years.

Meanwhile, greater business requirements drove the latest rise in employment.

The rate of job creation was the second-fastest since September 2015, with some firms also noting that the launch of new products supported hiring.

Despite easing to a three-month low, business confidence regarding the year ahead remained elevated in June, driven by robust client demand and the widepsread anticipation of further order book growth.

At 56.2 in June, the final seasonally adjusted IHS Markit U.S. Composite PMI Output Index fell slightly from 56.6 in May.

Although slightly weaker than the previous month, the overall private sector expansion was the second-fastest since April 2015 and signalled a strong end to the second quarter.

The composite index is based on original survey data from the IHS Markit U.S. Services PMI and the IHS Markit U.S.

Manufacturing PMI.

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