July data indicated a slight rebound in service sector activity growth, following the five-month low recorded in June. The latest survey also highlighted a strong and accelerated rise in new work, alongside a further robust upturn in payroll numbers. However, service providers’ confidence regarding the year-ahead business outlook dipped to its lowest since June 2012.
At 55.7 in July, the seasonally adjusted final Markit U.S. Services Business Activity Index picked up from 54.8 in June and remained above the neutral 50.0 threshold for the twenty-first consecutive month. Although the latest reading signalled a strong increase in business activity, the rate of expansion was the second-slowest since January. The earlier ‘flash’ reading for July was 55.2.
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) registered 55.7 in July, above the earlier ‘flash’ reading of 55.2 and up from June’s five-month low of 54.6. Although the latest reading pointed to a relatively strong increase in U.S. private sector output, the rate of expansion was fractionally weaker than that recorded on average in the second quarter of 2015.
In line with the trend for business activity, service providers indicated a faster rise in new work during July. The improvement in new business volumes was the strongest since April and above the average seen since the survey began in late-2009. Anecdotal evidence suggested that improving U.S. economic conditions had led to greater sales opportunities and stronger underlying client demand. Moreover, the upturn in new business growth contributed to a renewed rise in unfinished work across the service economy in July.
Increased workloads contributed to a further expansion of staffing levels at service sector companies in July. Payroll numbers have now risen continuously for almost five-and-a-half years, with the latest improvement in employment levels stronger than the average over this period.
Meanwhile, the latest survey indicated that service providers remain upbeat about their prospects for business activity over the next 12 months, with more than one-third (35%) expecting a rise and only 4% forecasting a reduction. However, the overall degree of positive sentiment dipped for the second month running and was the lowest since June 2012.
The latest survey suggested that pressure on operating margins persisted, with input cost inflation continuing to outstrip rises in service providers’ average tariffs. Higher food prices and salary payments were mentioned in particular, although the overall pace of cost inflation eased from June’s 20-month high.