Services PMIs

US service sector growth remains positive in August

The S&P Global US Services PMI^® Business Activity Index posted 54.5 in August, down from 55.7 in July and the earlier ‘flash’ reading of 55.4 to signal slower, but nonetheless still marked, growth of US service sector output. (…) Moreover, August’s index reading was the second highest of 2025 so far.

Underpinning the latest rise in activity were increased new business volumes. Like activity, growth was the second highest of the year to date. There were reports amongst service providers of a general uplift in demand, especially amongst those operating in financial services. Conversely, worries over tariffs and an uncertain business environment limited gains for consumer service providers whilst also weighing on international demand. New export business overall was down (albeit marginally) for a fifth successive month in August.

Further rises in overall activity and new business encouraged service providers to add to their payroll numbers, with latest data signaling an increase in staffing levels for a sixth month in a row. Growth was solid and comparable to the recent trend. Capacity pressures nonetheless remained evident, with backlogs of work again rising solidly in the latest survey period.

Service providers noted that payroll expenses helped to push up their overall operating costs in August. Tariffs were also frequently mentioned as a driver of inflation, with suppliers reported to be raising their charges accordingly. Latest data showed an ongoing pass through of these higher operating expenses to clients via an increase in selling prices. Although down a little since July, output price inflation remained elevated and amongst the steepest recorded by the survey in the past three years.

Inflation worries and ongoing uncertainty related to federal policies (again most notably around tariffs) served to weigh on business sentiment during August, with confidence about future activity down to a four-month low and amongst the weakest seen in the past three years.

That said, firms typically expect activity to rise from present levels over the next year. There are hopes amongst panelists that interest rates will fall, which should help to spur sales and demand. Planned marketing campaigns and expected new service releases should also support new business growth.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence

“Although weaker than signaled by the preliminary ‘flash’ PMI reading, and below that seen in July, the expansion of the service sector in August was still the second strongest recorded so far this year. Together with a robust manufacturing PMI reading, the surveys are consistent with the US economy growing at a solid 2.4% annualized rate in the third quarter.

“Fuller order books, reflecting a summer upturn in customer demand, has meanwhile encouraged service providers to take on additional staff in increasing numbers, accompanied by a return to hiring in the manufacturing sector. While low household confidence is reportedly keeping spending on consumer services relatively subdued, demand for financial services is showing especially strong growth amid improving financial market conditions.

“However, the brighter news on current economic growth and hiring is marred by concerns over future growth prospects and inflation. Business optimism regarding the year ahead outlook has dropped to one of the lowest levels seen over the past three years amid escalating worries over the uncertainty and drop in demand caused by federal government policy, most notably tariffs, as well as the associated rise in price pressures. Inflation concerns have been fanned by a further steep rise in input costs which have fed through to another marked increase in average charges for services.

“The survey data therefore point to some downside risks to growth in the coming months while signaling upside risks to inflation, as import tariffs feed through to prices charged for both goods and services.”

The ISM Services came back stronger after weak summer data:

• In August, the Services PMI registered 52 percent, 1.9 percentage points higher than the July figure of 50.1 percent and in expansion territory for the third month in a row.
• The Business Activity Index remained in expansion in August, registering 55 percent, 2.4 percentage points higher than the reading of 52.6 percent recorded in July. (…)
• The New Orders Index also remained in expansion in August, with a reading of 56 percent, up 5.7 percent from July’s figure of 50.3 percent.
• The Employment Index was in contraction territory for the third month in a row and the fifth time in the last six months; the reading of 46.5 percent is 0.1 percentage point higher than the 46.4 percent recorded in July.

 

(Wells Fargo)

Canada: Further contraction of service sector signalled in August

(…) Lower levels of new business continued to weigh on business activity during August. The rate of contraction was similarly sharper, reflecting a combination of limited client budgets and the noticeable uncertainty created by tariffs. New export business was again most notably affected. Latest data showed that new export sales declined to the steepest degree since April amid a widespread reluctance amongst international clients to commit to new contracts. (…)

Companies reported that tariffs were leading to higher supplier charges.

Service providers sought to pass on higher costs to clients wherever possible, resulting in a fourth successive monthly increase in output charges. However, the rate of inflation softened to its lowest in this sequence. Competitive market conditions limited pricing power, according to panellists.

US Initial Jobless Claims Rise to Highest Level Since June

Applications for US unemployment benefits rose to the highest since June, adding to evidence that the labor market is cooling.

Initial claims increased by 8,000 to 237,000 in the week ended Aug. 30. The median forecast in a Bloomberg survey of economists called for 230,000 applications. (…)

The four-week moving average of new jobless claims, a metric that helps smooth out volatility, rose to 231,000, the highest since July.

Though not worrisome so far when looked at on YoY basis:

Q2’s productivity growth rate was revised up sharply from 2.4% a.r. to 3.3% as output rose 4.4% and hours worked rose 1.1%. Hourly compensation rose 4.3% a.r. and 2.6% YoY during Q2.

Unit labor costs rose just 1.0% QoQ and 2.5% YoY during Q2.

@GregDaco

Business sales rising 3.5-4.0% YoY vs ULC up 2.0-2.5%, corporate margins are rising nicely.

Light Vehicles Sales Decreased to 16.07 million SAAR in August This was down 2.9% from the sales rate in July, and up 6.2% from August 2024.

Trump Says ‘Fairly Substantial’ Chips Tariffs Coming ‘Shortly’

President Donald Trump said he would be imposing tariffs on semiconductor imports “very shortly” but spare goods from companies like Apple Inc. that have pledged to boost their US investments.

“Tim Cook would be in pretty good shape,” Trump said Thursday of the Apple chief executive officer when it comes to the exposure his company might face from import levies, noting its recent investment commitments. (…)

“I’ve discussed it with the people here, chips and semiconductors, and we’ll be putting tariffs on companies that aren’t coming in,” Trump said. “We’ll be putting a tariff very shortly. You probably are hearing we’ll be putting a fairly substantial tariff, or not that high, but fairly substantial tariff.”

He added that “if they’re coming in, building, planning to come in, there will not be a tariff.”

Trump last month during an event with Cook said that he planned a 100% tariff on semiconductors, while exempting products from companies that move their manufacturing to the US. Apple has pledged to spend $600 billion on a domestic manufacturing initiative.

Trump has previously suggested that the rate on tariffs could be well above 100%, reaching potentially as high as 200% or 300%.

Eurozone Posts Marginal Economic Growth in 2Q, But ECB Rate Cut Remains Unlikely The slowdown was driven by the currency area’s largest member, Germany

Across the 20 nations that share the euro, gross domestic product was 0.1% higher than the first quarter, in line with previous estimates. That marks a sharp slowdown from the 0.6% expansion recorded over the first three months of the year.

The slowdown was driven by the currency area’s largest member, Germany. Output in the export-oriented economy declined by 0.3% as fresh U.S. tariffs hit factory output and confidence among business and households.

Manufacturing orders slumped for a third month straight in July, separate figures from the German statistical authority showed Friday, highlighting the ailing demand clouding the country’s factories.

In the eurozone as a whole, falling exports and declining investment acted as a brake on GDP growth over the quarter. But household spending, a key element in ECB decision-making, kept rising, likely adding to the central bank’s caution as it considers whether to resume cutting interest rates.

• German Manufacturing Orders Drop as Foreign Demand Takes Hit The slump was likely driven by a drop in large-scale orders from Airbus

Orders dropped 2.9% on month in July, a larger fall than the 0.2% of June, Germany’s statistics agency Destatis said Friday. Economists polled by The Wall Street Journal expected a 0.7% rise. It is a third monthly decline in a row and the largest drop since January.

As increased tariffs roil global trade, foreign orders for German goods fell 3.1%, though there was a steeper 3.8% decline for orders inside the eurozone, which are less likely to be subject to levies. Domestic orders declined 2.5%.

The overall slump was driven by a drop in large-scale orders worth over 50 million euros, or $58.3 million, likely from orders at plane maker Airbus. Without large-scale items, orders grew 0.7%. (…)

Orders for electrical equipment also notably fell on month in July, though there was a rise in demand in Germany’s key automobile industry and for consumer goods, Destatis said.

The hope for Germany comes from its latest Manufacturing PMI: “New orders increased for the third month in a row in August and at a slightly faster rate than that recorded in July. This was despite a first – albeit marginal – reduction in export sales for five months.”

Mexico considering imposing tariffs on China, President says

FYI from Axios:

Trump’s approval rating on inflation and cost of living currently sits at -24, nearing Biden’s lows during the peak of the 2022–23 price surge, according to averages by pollster G. Elliott Morris.

• Trump’s favorability on jobs and the economy overall is better, but still underwater at -13.
• 52% of U.S. adults say the economy is “getting worse,” while only 24% say it’s getting better and 20% say it’s about the same, according to The Economist/YouGov polling.
• Poll after poll shows Trump’s Big Beautiful Bill Act — which extended his 2017 tax cuts while slashing Medicaid and other safety net programs — is the most unpopular major piece of legislation in years.

Also FYI via Bloomberg: War Games

Trump will sign an executive order today renaming the Department of Defense as the Department of War, reviving a moniker not used since the 1940s. The president has long mused about making the change, even as he boasts of his efforts to end conflicts abroad and argues that he’s deserving of the Nobel Peace Prize.

• At the same time, Trump is stepping up US military activity around the world. After bombing Iranian nuclear sites in June, the US is deploying warships in the southern Caribbean to target drug cartels, a move that’s inflamed tensions with Venezuela.
• The Pentagon said two Venezuelan jets buzzed an American vessel in international waters, days after the US struck a suspected drug-smuggling boat in the Caribbean Sea it said was headed from Venezuela, killing all 11 people aboard.
• Chile’s foreign minister said Latin American nations are drafting a joint declaration calling for peace. Meanwhile, Secretary of State Marco Rubio has said the US would be open to basing troops in Ecuador, more than 15 years after a previous president expelled them.
• All this comes just weeks after Washington put a $50 million bounty on Venezuelan leader Nicolás Maduro’s head, awakening some long dormant interventionist fantasies.

Mark Twain:

• The statesmen will invent cheap lies, putting the blame upon the nation that is attacked, and every man will be glad of those conscience-soothing falsities, and will diligently study them, and refuse to examine any refutations of them; and thus he will by and by convince himself that the war is just, and will thank God for the better sleep he enjoys after this process of grotesque self-deception.
• God created war so that Americans would learn geography.

Cooling US jobs market becoming more apparent

There has been quite a sizeable reaction to [yesterday]’s softer-than-anticipated job openings numbers with 24bp of a potential 25bp rate cut now priced for September (up from 23bp) while the cumulative cuts priced by the December FOMC meeting are now 58bp versus 55bp before the data. (…)

Job openings fell to 7181k in July from a downwardly revised 7357k in June (consensus 7380k) while the daily data from job postings website Indeed had pointed to a decent increase. The report also indicated a notable pick-up in layoffs from the previous trend with sizeable upward revisions.

The chart below shows the ratio of job openings (vacancies) to the number of unemployed Americans has dropped below 1 for the first time since the beginning of 2018 (excluding the pandemic), which is a clear signalling of a weakening jobs market with wage pressures quickly evaporating.

Remember that in 2022 we had seen the quits rate peak at 3%, which led to real concern about staff retention that fuelled the pay rise boom. Well, today, we are down at just 2%, which is in line with historical rates of job churn that is consistent with wage growth slowing to just 3%. (…)

Ratio of job openings to the number of unemployed Americans drops below 1

Source: Macrobond, ING

Meanwhile, yesterday’s ISM manufacturing employment component was in deep contraction territory, suggesting a fourth consecutive monthly fall in manufacturing payrolls on Friday. It all hints that the Fed will be cutting rates pretty meaningfully over coming months – we expect them to cut 25bp at the September, October and December FOMC meetings.

• Labor Demand Continues to Erode

The latest reading on job openings further demonstrates that demand for workers is tepid. Job openings fell more than expected to 7.2 million in July. Smoothing over the past three months, job openings have averaged 7.4 million, down only modestly (2.5%) over the past year.

The weaker-than-expected outturn aligns the JOLTS data with weak payroll growth recently. Yet, even with the decline in July, the job opening rate has been vacillating between 4.3-4.8% since the end of 2024, not too far from pre-pandemic averages. Separate data from Indeed show job postings stabilizing the past two months, while the share of small businesses planning to hire has also edged up since the spring. In short, there are tentative signs of labor demand is stabilizing after being rocked by policy uncertainty earlier this year, but the overall trend remains muted.

Underlying paralysis in the jobs market continued in July. The layoff rate was unchanged at 1.1%, consistent with initial jobless claims moving sideways and firms being reluctant to let go of existing workers. Yet, firms are simultaneously hesitant to bring on new workers. The hiring rate held at 3.3% in July, keeping it near its lowest level in more than a decade (excluding the pandemic). Amid dwindling job opportunities, workers continue to stay put. The quit rate held at 2.0% in July, but is at risk of edging down in the coming months as the labor differential (i.e., the share of consumers who rate jobs as “plentiful” less “hard to get”) fell to a four-year low in August.

Overall, while there are few signs of the jobs market unraveling, the current balance remains tenuous. With hiring subdued, low layoffs remain the linchpin to keeping net employment growth in the black. Although economic policy uncertainty has retreated somewhat since the spring, we suspect that the slower pace of consumer spending and cost pressures related to tariffs will keep the pressure on businesses to look for cost savings where they can, including their workforce.

July 30, 2025: Jay Powell’s post FOMC presser:

In the labor market, conditions have remained solid. (…) Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance and consistent with maximum employment. (…)

The labor market is solid. (…)

So you do not see a weakening in the labor market. You do see a slowing in job creation, but also in a slowing—a slowing in the supply of workers. So you’ve got a labor market that’s in balance, albeit partially because both demand and supply for workers has—is coming down at the same pace, and that’s why the unemployment rate has remained roughly, roughly stable, which is why I said there—we do see downside risk in the labor market. (…)

So the labor market looks, looks solid. (…)

But, as I mentioned, you know, downside risks to the labor market are certainly apparent.

(…) we have a very good labor market right now. (…)

So I think if you take the totality of the labor market data, you’ve got a solid labor market. But I think you have to see that there are downside risks. It’s not—you don’t see weakening in the labor market, but I think you’ve got downside risks in a world where unemployment’s being held down because both demand and supply are declining. (…)

So the labor market is actually still quite solid.

Solid, even “quite solid”; “you don’t see weakening in the labor market, but I think you’ve got downside risks”.

Two days later, the BLS reported July job growth at 73k and revisions bringing May and June at 16k.

August 22, 2025: Jay Powell’s Jackson Hole statement:

Overall, while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.

At the same time, GDP growth has slowed notably in the first half of this year to a pace of 1.2 percent, roughly half the 2.5 percent pace in 2024 . The decline in growth has largely reflected a slowdown in consumer spending. (…)

In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside—a challenging situation.

FYI, GDP slowed in Q1 but bounced +3.3% in Q2 in spite of consumer spending at 1.6%. Q3 GDP now seen at 2,2% (NY Fed) or +3.0% (Atlanta Fed). Consumer spending jumped +4.0% a.r. in July.

Thankfully, amid all these fluctuations in data and assessments, we will get the August BLS employment report tomorrow, the first release since the new Trump appointment…

Today we get the Services PMIs from real world purchasing managers which don’t revise their observations. Alas, there are 2 PMI surveys in the US and they recently did not agree at all .

Yesterday’s JOLTS release boosted expectations for a September rate cut. But that was July and it merely brought the JOLTS data more in line with Indeed Job Postings which, through August 22, have stopped declining, even rising 2.0% since their mid-July through.

Downside Risks to Job Growth Over the Coming Months

Sentiment indicators for consumers and firms are pointing to a weaker employment report for August.

First, consumer sentiment about the outlook for the labor market has historically been a leading indicator for job growth. Using the historical relationship to predict the August employment report suggests that nonfarm payrolls on

Friday could come in lower than the 90,000 expected by the consensus, see the first chart below.

Second, small businesses saying that they are experiencing poor sales has also been a leading indicator for the unemployment rate, and the current reading suggests the unemployment rate could rise over the coming months, see the second chart.

The bottom line is that sentiment indicators are suggesting that the labor market will continue to weaken.

  

Trump’s trade war bruises Brand USA

Brand USA is losing its luster: There’s less appetite around the world to buy American as the United States’ reputation plunges in the wake of President Trump’s trade war.

Companies accustomed to a boost just because they come from the U.S. are struggling to adapt.

“The aura around America has dimmed a bit,” McDonald’s CEO Chris Kempczinski told CNBC this week. Even so, sales for the fast-food giant are holding up so far, he said.

• Other well-known American brands are feeling the pressure, too.
• Brown-Forman, the company that makes U.S. booze brands Jack Daniel’s and Woodford Reserve, saw sales drop after American alcohol was taken off the shelves in some Canadian provinces in protest of tariffs, CEO Lawson Whiting said in an August investor call.
• Tesla has also taken a big hit to its brand this year in Europe, a result of CEO Elon Musk’s entanglements with the White House.

Companies’ reputations have long been tied to their country of origin’s global standing — particularly fast-food and beverage businesses.

• Brands like Coca-Cola and General Motors, or even Facebook, are inextricably tangled up with their American identities.

Globally, America’s favorability rating started declining in earnest in January when Trump was elected. It plummeted after his Liberation Day tariff announcement in April, according to data tracked by business intelligence firm Morning Consult.

Data: Morning Consult. Chart: Axios Visuals

The firm surveys adults across approximately 42 markets in Europe, the Americas, Asia and the Middle East, to assess whether they have a positive or negative view of the U.S.

• Globally, the average U.S. favorability rating is at -3.24. (That is, more folks have a negative view than a positive one.) It’s been in negative territory since April — though it’s bounced back slightly from its April bottom.
• In January, America had a positive favorability rating of 15.34.

Though there have been ups and downs in America’s global standing, it’s “typically been a benefit,” says Sonnet Frisbie, deputy head of political intelligence at Morning Consult. Companies didn’t have to consider America’s rep much before, but now they’re worried, says Frisbie, and looking for ways to adjust strategically. (…)

Ocean Shipping Rates Sink as Importers Balk at Trade Upheaval A 68% decline in shipping costs shows how retailers and manufacturers are pulling back on orders earlier than usual this year

Ocean shipping rates from China to the U.S. West Coast have fallen 68% from their June high, a sign this year’s peak shipping season was earlier and shorter than usual.

The rate slide also signals that some U.S. retailers and manufacturers are taking a cautious approach to new orders ahead of the year’s busy fall and winter shopping periods amid tariff uncertainties, shifting trade policies and concerns about consumer spending. (…)

“Shippers are telling us it’s really hard to plan right now,” said Michael Aldwell, executive vice president of sea logistics at Kuehne + Nagel International, one of the world’s largest freight forwarders.

Aldwell said some importers are reducing inventory levels because of economic uncertainty. Others are still drawing down inventories they rushed in earlier this year to get ahead of tariffs. (…)

The National Retail Federation forecasts that U.S. importers in September will bring in 1.83 million containers, measured in 20-foot equivalent units, a decrease of almost 20% compared with last year. The group’s Global Port Tracker forecasts monthly year-over-year import declines of between 19% and 21% through the rest of the year.

Homegrown robots help drive China’s global export surge

Chinese factories are installing about 280,000 industrial robots every year, or half the global total, bringing the country’s robot-to-worker density ahead of Germany and closing in on leader South Korea, according to the International Federation of Robotics.

Data from Chinese research group MIR Databank shows that about half of those robots are made by domestic groups such as Chengdu CRP Robot Technology, which has won local customers by undercutting global rivals on price.

“Not everyone needs an Audi A8. For many scenarios our functionality and stability will suffice,” said CRP’s chief Li Liangjun. His welding robots sell for about 60 per cent of the price of Japanese rivals Yaskawa and Fanuc, and those from ABB and Kuka. (…)

“With each robot, our labour costs come down by half and our efficiency increases,” said Song Ling, deputy manager of Shuangsheng New Energy Vehicle, the small company which owns the factory. “There is no choice but to automate.”

Over the past three years, Shuangsheng has automated about half of its production line, opting to buy dozens of locally made machines after testing them against several from Japanese groups. The factory is now shipping growing volumes of Rmb6,000 cargo-carrying carts and tuk-tuks to south-east Asia as well as Africa and the US. 

CRP’s chief Li said local factories were buying his more affordable Chinese robots to make a variety of low-end goods, including three-wheeled carts, furniture, fitness equipment and bicycles.

“In the past China relied on its large population of 1.3bn people and abundant cheap labour to gain its status as a manufacturing powerhouse,” Li added. “Now China is maintaining its labour advantage with robotic labour instead of human labour.”

At Shuangsheng, dozens of CRP robots began replacing welders who could demand monthly wages of up to Rmb15,000. The government hopes many blue collars workers can upgrade their skills into an expanding “purple collar” workforce of robot technicians. (…)

In the southern textile hub of Keqiao, Jay Ye, owner of Shaoxing Longkai Textile, has purchased several massive printing and embroidery machines to replace workers and increase productivity.

Ye said the locally made machines had helped double his factory’s output while increasing profit margins. “In India they are still embroidering by hand,” Ye said. “We are using machines.”

MAGA?

This was before AI…

Nvidia’s Jason Huang:

• “Everything that moves will be autonomous someday,” he said, noting that every company will have two factories: one for production, and one to produce the AI that manages production.
• “We’re working towards a day where there will be billions of robots, hundreds of millions of autonomous vehicles, and hundreds of thousands of robotic factories that can be powered by Nvidia technology”