October data pointed to a relatively strong month for the US service sector, with business activity and incoming new work rising at the fastest rates since November 2015. Survey respondents attributed the recovery in growth momentum to improving domestic economic conditions and greater consumer spending in particular. The latest figures also highlighted that inflationary pressures picked up since September, with average cost burdens rising at the strongest pace for 15 months.
Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 54.8 in October, up markedly from 52.3 in September and above the crucial 50.0 no-change value for the eighth consecutive month. The latest reading signalled a robust upturn in service sector output, with the rate of expansion the steepest for almost one year.
Mirroring the trend for business activity, latest survey data revealed that new orders picked up at the strongest pace since late-2015. Anecdotal evidence suggested that improved confidence among clients had boosted new business growth, alongside new product launches and successful marketing initiatives.
A robust and accelerated rise in incoming new work contributed to an accumulation of unfinished business at service sector companies in October. The rate of backlog accumulation was the fastest since March 2015 and slightly stronger than the post-crisis trend.
Despite signs of renewed pressure on operating capacity, job creation picked up only slightly from September’s three-and-a-half year low. Some firms cited cautious hiring strategies in response to heightened uncertainty about the business outlook.
However, the latest survey indicated that service providers were more upbeat overall about their year ahead growth prospects in October. The degree of positive sentiment recovered to its highest since August 2015, which was partly linked to a recent rebound in new business growth.
Meanwhile, service providers signalled a much sharper pace of input cost inflation than the 19-month low recorded in September. The latest rise in average cost burdens was the fastest since July 2015. Higher operating costs and signs of improving client demand resulted in a moderate increase in average prices charged by service sector companies in October. Mirroring the trend for input costs, the rate of prices charged inflation was also the fastest since mid-2015.
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index rose to 54.9 in October, from 52.3 in the previous month. The latest reading signalled the strongest upturn in private sector output since November 2015.
Both the manufacturing and service sector recorded faster rates of expansion in October. Production growth across the manufacturing sector was the fastest for 12 months (output index at 55.5). The composite index is based on original survey data from the Markit U.S. Services PMI and the Markit U.S. Manufacturing PMI.
Chris Williamson, Chief Business Economist at IHS Markit:
(…) employment growth across the services and manufacturing sectors remained one of the weakest seen for over three years, though still signals a respectable 130,000 rise in non-farm payrolls in October.
Current consensus for Friday’s NFP is 170k.
The more volatile ISM Services is now in line with the steadier Markit as Zerohedge illustrates: