June data highlighted another subdued month for the U.S. service sector, with activity growth remaining marginal and job creation easing to its least marked for a year-and-a-half. Incoming new work increased at the fastest pace since January, but the rate of expansion remained weaker than its post-crisis trend. Meanwhile, service providers indicated another drop in confidence regarding the year-ahead business outlook, with the latest reading the weakest since the survey began in late-2009.
At 51.3 in June, the seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index was unchanged since May and only marginally above the neutral 50.0 threshold. As a result, the average reading for the second quarter of 2016 (51.8) was only slightly stronger than seen during the first three months of the year (51.4).
Reports from survey respondents suggested that relatively subdued demand continued to weigh on activity growth in June, reflecting heightened economic uncertainty and risk aversion among clients. Latest data signalled only a moderate increase in new business volumes, although the pace of expansion picked up slightly since May and was the strongest for five months.
Staffing levels increased across the service economy in June. However, the rate of job creation eased for the third month running and was the slowest since December 2014. Softer employment growth in part reflected a lack of pressure on operating capacity at service sector firms, as highlighted by a sustained reduction in unfinished work during June.
Meanwhile, input cost inflation remained subdued and slowed to its weakest since March. This in turn acted as a brake on output charge inflation across the service sector, which remained marginal and eased since the previous month.
Looking ahead, service sector companies indicated subdued confidence regarding the one-year ahead outlook for business activity. The degree of positive sentiment moderated for the second month running and was the lowest since the survey began over six-and-a-half years ago.
Markit Flash U.S. Composite PMI™
Adjusted for seasonal influences, the Markit Flash U.S. Composite PMI Output Index registered 51.2 in June, up only fractionally from 50.9 in May. The latest reading signalled a marginal expansion of U.S. private sector output. Both the service economy (‘flash’ index at 51.3 in June) and the manufacturing sector (‘flash’ output index at 50.9 in June) recorded subdued rates of expansion.
The survey data indicate that any rebound in the economy from the weak first quarter was largely confined to April, and that growth has since faded again. The June PMIs, which provide the first insight into national business activity in the second quarter, suggest the underlying rate of growth in the economy is only a meagre 1%.