U.S. service providers indicated an upturn in business activity growth from the six-month low recorded during August. Nonetheless, the pace of expansion remained modest and softer than its post-crisis trend, largely reflecting subdued new business gains in recent months.
The latest survey highlighted that new work increased at the weakest rate since May, which contributed to another moderation in staff hiring across the service economy. The rise in payroll numbers during September was only marginal and the slowest seen for three-and-a-half years.
The seasonally adjusted final Markit U.S. Services Business Activity Index registered 52.3 in September (‘flash’ reading: 51.9), up from 51.0 in August, to signal the fastest upturn in service sector output since April.
That said, on average in the third quarter, the headline index posted 51.5, little-changed from 51.8 in Q2. Companies reporting a rise in business activity suggested that new product launches and the completion of unfinished work had helped to offset subdued underlying new order growth.
Volumes of new work received by service providers in September increased only moderately since the previous month. Moreover, the rate of new business growth eased to its joint-slowest since the post-crisis low recorded in March.
Anecdotal evidence suggested that generally subdued domestic economic conditions and uncertainty ahead of the presidential election had continued to act as headwinds to client spending.
Despite a further moderation in new business growth, the latest survey indicated that backlogs of work were accumulated across the service sector for the third month running in September. The latest rise was the second-fastest since April 2015, which survey respondents linked to new projects and softer rates of staff recruitment. September data signalled only a marginal increase in service sector payroll numbers, with the pace of job creation the weakest since March 2013.
Service providers indicated that their growth forecasts for the next 12 months remain subdued in comparison to those seen at the beginning of 2016. Moreover, the degree of positive sentiment eased in September and was close to June’s survey-record low. Survey respondents cited fragile economic conditions, some noted hopes of a rebound in client spending after the election.
Meanwhile, latest data showed that input cost inflation eased to its slowest since February 2015. This resulted in the weakest pace of output charge inflation for five months in September.
Markit Final U.S. Composite PMI™
At 52.3 in September, the final Markit U.S. Composite PMI™ Output Index was up from 51.5 in August and signalled the fastest rise in private sector business activity since April. However, new business volumes and employment numbers expanded at slower rates during the latest survey period.
The latest increase in private sector output reflected moderate rises in both manufacturing production and service sector activity. That said, the rate of manufacturing output growth eased to a three month low in September, which contrasted with the steeper upturn in business activity recorded by service providers.
Chris Williamson, Chief Business Economist at IHS Markit:
Even with the latest increase the surveys are indicating that the economy is growing at an annualized rate of only 1%.
The ISM Services continues to display a very erratic behavior, jumping 5.7 points to 57.1, its biggest jump on record.
The NMI® registered 57.1 percent in September, 5.7 percentage points higher than the August reading of 51.4 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased substantially to 60.3 percent, 8.5 percentage points higher than the August reading of 51.8 percent, reflecting growth for the 86th consecutive month, at a noticeably faster rate in September.
The New Orders Index registered 60 percent, 8.6 percentage points higher than the reading of 51.4 percent in August. The Employment Index increased 6.5 percentage points in September to 57.2 percent from the August reading of 50.7 percent. The Prices Index increased 2.2 percentage points from the August reading of 51.8 percent to 54 percent, indicating prices increased in September for the sixth consecutive month.
According to the NMI®, 14 non-manufacturing industries reported growth in September. The comments from the respondents are mostly positive about business conditions and the overall economy. A degree of uncertainty does exist due to geopolitical conditions coupled with the upcoming U.S. presidential election.
Zerohedge plots the ISM with Markit’s Services PMI…
…further mocking the ISM with this:
The last 2 times ISM Services jumped this much, the economy crashed into recession…