June data highlighted a sustained rise in business activity across the U.S. service sector, helped by the fastest expansion of new work since the start of 2016. However, growth momentum remained weak in comparison to its post-crisis trend, which contributed to a slowdown in job creation for the third month running in June. Business expectations for the year ahead also continued to soften, with service providers indicating the lowest degree of optimism since the survey began in October 2009.
At 51.4 in June, up fractionally from 51.3 in May, the seasonally adjusted Markit U.S. Services Business Activity Index signalled a further marginal expansion of service sector output. On average over the second quarter of 2016, the headline index was up fractionally from the previous quarter (rising to 51.8 in Q2 from 51.4 in Q1). Survey respondents commented on generally improving client spending, but there were also reports that subdued business confidence and heightened economic uncertainty had acted as a brake on growth in June.
The final seasonally adjusted Markit U.S. Composite PMI™ Output Index registered 51.2 in June, unchanged from the earlier flash figure, to signal a further marginal expansion of private sector output. The latest reading was up from 50.9 in May but still well below the post-crisis average.
Marginal growth was recorded for both service sector activity (index at 51.4) and manufacturing production in June (index at 50.4).
New work received by service providers expanded at a moderate pace in June, and the latest upturn was the fastest since January. However, the rate of expansion remained weaker than its post-crisis trend. This contributed to another reduction in work-in-hand (but not yet completed) across the service economy. Lower levels of unfinished business have now been recorded for 11 consecutive months.
Payroll numbers increased in the service sector during June, which continued the upward trend seen in each month since March 2010. However, the rate of jobs growth eased to its weakest for 17 months, with firms noting that economic uncertainty and a lack of pressure on operating capacity had resulted in more cautious staff hiring.
The balance of service providers expecting a rise in business activity during the next 12 months reached a fresh survey-record low in June. Business optimism has now fallen in four of the past five months. Anecdotal evidence suggested that general economic uncertainty and the forthcoming presidential election had weighed on business sentiment in June.
On the prices front, latest data signalled only a moderate rate of input cost inflation across the service economy. Higher operating costs were partly linked to increased fuel prices. However, the overall rate of input price inflation eased to a three-month low in June. At the same time, output charge inflation remained only marginal. Service sector firms noted that subdued client demand had limited their ability to pass on higher costs to clients.