Latest data signalled a slight loss of growth momentum across the U.S. service sector in October, with weaker growth in new orders contributing to the slowest increase in business activity for four months. Softer client demand weighed on growth expectations for the year ahead, with the degree of optimism edging closer to July’s three-year low. As a result, companies were more cautious with regard to their hiring policies, with service sector employment rising at the weakest pace since February. Meanwhile, inflationary pressures were relatively muted; input prices increased modestly while output charges rose only slightly.
The seasonally adjusted Markit U.S. Services Business Activity Index posted at 54.8 in October, down from 55.1 in September, but remaining comfortably above the neutral 50.0 value. That said, the rate of expansion was the slowest seen in four months and below the series average (55.8). Higher business activity was largely linked by respondents to a general improvement in economic conditions and new client wins.
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index posted 55.0 in October, unchanged from September’s three-month low, but still pointing to a robust rate of growth. Sector data indicated that a stronger expansion of manufacturing output (index up from 54.5 to 55.6), was offset by slower service sector growth (index down from 55.1 to 54.8).
As was the case with manufacturing activity, new business volumes also increased at a slower rate in October. Moreover, with the latest expansion of new order books the slowest since January.
Reflective of slower growth in activity and new orders, confidence towards the 12-month business outlook weakened in October was only slightly higher than July’s three-year low. A number of companies commented that a slowdown in market conditions had impacted their forecasts for future growth.
Companies reported a relatively modest rate of job creation in October, with payroll numbers expanding at the slowest pace in eight months. According to panellists, workforce numbers were raised in line with new business growth. Backlogs of work meanwhile fell for the third successive month. The rate of depletion eased since September and was only fractional.
After a two-month sequence of falling output charges, service providers increased their tariffs in October, albeit only marginally. At the same time, average input costs rose at a modest pace that was little-changed from September.