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U.S. service sector activity growth eases

Staff Writer |
The latest survey data signalled a weaker rise in business activity across the U.S. service sector.

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Output growth softened to a four-month low and dipped below the long-run series trend.

The rate of new business growth softened to an eight-month low, despite remaining strong overall.

Subsequently, firms showed evidence of spare capacity with backlogs falling further and employment growth slowing to a seven-month low.

Meanwhile, increases in input prices and output charges eased, despite the rate of charge inflation remaining well above the series trend.

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 54.8 in August, down from 56.0 in July.

Output growth was largely attributed by panellists to greater client demand and the opening of new facilities.

However, the overall rate of growth eased to the softest since April.

New business also increased in August, but the rate of expansion dipped to an eight-month low.

Anecdotal evidence linked the rise to the acquisition of new clients and new project launches.

Despite the rate of new business growth outstripping that of output, backlogs contracted for the second month running.

The pace of decline was only fractional and eased slightly from that seen in the previous month.

Although still solid, the rate of job creation dipped to a seven-month low in August.

Firms commonly reported difficulties finding suitable candidates, while greater business requirements and a sustained rise in new orders led many to increase employment.

Input prices paid by service sector firms continued to increase at a strong rate in August.

The pace of inflation nonetheless softened to a five-month low, the increase was faster than the series trend.

Anecdotal evidence suggested that higher cost burdens stemmed from greater purchases prices (largely driven by tariffs) and a rise in fuel costs.

Larger cost burdens were partly passed on to clients through higher output charges.

Delays receiving purchases and higher wage costs were commonly mentioned as placing strain on profit margins.

The rate of inflation remained strong and close to July’s recent peak.

Finally, business confidence was strongly positive and optimism improved from July’s recent low in August.

Panellists stated that output expectations were driven by planned investment, greater marketing activity and a sustained rise in new business.

At 54.7 in August, the final seasonally adjusted IHS Markit U.S. Composite PMI Output Index fell from 55.7 in July.

Although strong, the pace of expansion eased to a five-month low, driven by weaker rates of growth across both the manufacturing and service sectors.

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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