September data pointed to sustained growth across the U.S. service sector, although both output and new business expanded at slightly slower rates than in August. Job creation was also maintained at a robust pace, while a decline in backlogs of work for the third time in the past four months pointed to lower pressure on operating capacity. Looking ahead, service providers are optimistic about the business outlook, but the degree of positive sentiment dipped to its second-lowest since June 2012. On the inflation front, average prices charged decline for the second month running, which represented the first back-to-back declines in output charges since the survey began six years ago.
At 55.1 in September, the seasonally adjusted final Markit U.S. Services Business Activity Index was well above the 50.0 no-change value, but down from 56.1 in August and the lowest reading since June. This also placed the headline index slightly below the average seen since the survey began in late-2010 (55.8).
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index posted 55.0 in September, down from 55.7 in August and the lowest reading for three months. Slower U.S. private sector output growth mainly reflected a weaker contribution from services (index at 55.1 in September, down from 56.1 during August), while manufacturing production growth picked up slightly (54.5, up from 53.8 in August).
Survey respondents commented on generally supportive economic conditions during September, particularly in domestic markets, but some firms noted that weaker new business growth had weighed on activity over the month. Reflecting this, the latest increase in new work received by service providers was the slowest since January. Moreover, business confidence across the service sector moderated since August and reached its second-lowest level for just over three years. Some panel members pointed to greater caution among clients and the uncertain global economic outlook.
Despite softer new business growth and reduced confidence regarding the year-ahead outlook, service providers maintained a robust pace of job hiring in September. The latest expansion of workforce numbers was only fractionally slower than in August and still above the average for 2015 so far.
Input cost inflation moderated for the third month running to its lowest since February. Reports from survey respondents mainly cited lower fuel costs, which had partially offset rising salary payments and higher food prices. At the same time, average prices charged by service providers decreased at the most marked pace for almost five years in September.