June data indicated a sharp and accelerated expansion of business activity across the U.S. service sector. At 61.2, up from 58.1 in May, the seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index signalled the fastest rate of growth since the survey began over four-and-a-half years ago (surpassing the previous peak in February 2010).
The headline ‘flash’ PMI figure, which is based on approximately 85% of usual monthly replies, suggests that the performance of the service sector has picked up sharply across the second quarter of 2014. At 58.1, the average PMI reading in Q2 2014 is much higher than that seen in Q1 (55.1).
Service sector output growth has now accelerated in three of the past four months, with a strong rise during June supported by marked improvements in new business inflows. In line with the trend for output, latest data pointed to the fastest expansion of incoming new work since the survey began in October 2009. Anecdotal evidence cited more favourable economic conditions and a greater degree of willingness to spend among clients.
Higher levels of new work contributed to an increase in outstanding business for the second successive month in June. However, the rate of backlog accumulation was only marginal, in part reflecting a robust rise in payroll numbers. June data signalled the steepest expansion of service sector employment since September 2013.
Meanwhile, input cost inflation picked up for the third month running in June. The latest increase in average cost burdens at service providers was the steepest since October 2013. Despite stronger cost pressures, prices charged in the service sector rose at the slowest pace since March.
Looking ahead, latest data indicated that service sector companies are highly upbeat about the prospects for output growth over the next 12 months. Although the degree of positive sentiment eased to a four-month low in June, the index remained slightly stronger than seen on average since the survey began in late-2009.
Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said:
(…) this is not just a rebound from the weather-related disruptions to business seen earlier in the year. Companies are reporting strong demand for goods and services, linked to growing confidence among households and business customers, setting the scene for further robust economic growth as we move into the second half of the year.
“Improved confidence has fed through to increased hiring. Manufacturing and services sector firms took on staff at the fastest rate that we have seen since the financial crisis, boding well for another month of 200,000-plus non-farm payroll growth in June.”
