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Slowest increase in new U.S. business since March 2016

Christian Fernsby |
August data signalled a loss of momentum across the U.S service sector, with business activity rising at the softest pace since the current sequence of expansion began in March 2016.

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Topics: BUSINESS    U.S.   

The slowdown in output was driven by only a marginal upturn in new business, the least marked since early-2016.

Moreover, foreign client demand decreased.

Subsequently, firms expanded workforce numbers only fractionally and the level of business optimism sank to a fresh series low.

On the price front, input costs and output charges fell in August, with cost burdens decreasing for the first time since data collection began in October 2009.

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 50.7 in August, down from 53.0 in July and slightly lower than the earlier 'flash' figure of 50.9.

Although still signalling a marginal expansion in business activity, the rate of increase was the slowest in the current sequence of growth (beginning in early-2016) and well below the long-run series trend.

A number of panellists suggested that a slower rise in new orders held back business activity growth.

New business growth eased from July's solid pace to only a marginal rate in August that was the slowest since March 2016.

Where firms experienced softer order books, they linked this to less robust corporate spending.

That said, some continued to state that a further improvement in consumer demand was driving the sustained expansion.

New export orders, meanwhile, decreased for the first time since January, and at the sharpest rate for almost three years.

At the same time, input prices decreased for the first time in the series history in August.

Anecdotal evidence suggested the decline in costs was linked to the recent cut in interest rates and lower purchase prices.

Consequently, service providers cut their selling prices at a modest pace.

The decrease was the second in four months, but the fastest since data collection began in October 2009.

Panellists stated that lower charges were linked to greater discounting in an effort to attract new clients.

Expectations towards business activity over the coming year hit a fresh series low, as firms expressed greater concerns surrounding ongoing trade wars and a slowdown across the wider economy.

In line with a slower expansion in new business, employment across the service sector rose at only a fractional rate in August.

The rate of job creation was the softest since February 2010 as firms expressed greater reluctance to increase staffing, with the vast majority noting no change in workforce numbers.

Further reflecting excess capacity, service providers were able to clear backlogs for the first time in 2019 so far in August.

Although only marginal, the rate of backlog depletion was the sharpest since June 2016.

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