At 58.5 in August, down from 60.8 in July, the seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index – which is based on approximately 85% of usual monthly replies – signalled the slowest expansion of business activity since May. The index has now moderated for two months running since reaching a post-crisis peak in June (61.0). However, the latest reading remained comfortably above the survey average (55.7) and signalled a strong overall pace of output expansion across the U.S. service sector.
August data indicated a rebound in new business growth from the three-month low recorded during July. Anecdotal evidence attributed robust new order gains to improving economic fundamentals and an associated upturn in spending among clients. Higher levels of incoming new work contributed to a renewed increase in unfinished business in August. Backlogs have now risen in three of the past four months and the latest increase was the fastest since May.
Strong new business growth and optimism towards the economic outlook encouraged job hiring at service sector companies in August. The rate of workforce expansion picked up slightly since July, with the latest upturn in payroll numbers marking four-and-a-half years of continuous jobs growth.
Service providers also signalled an upturn in their confidence towards the business outlook in August, with the degree of positive sentiment up sharply from July’s 20-month low. Just over half of the survey panel anticipate a rise in business activity at their units over the year ahead, with service providers citing improvements in the wider economy and the launch of new products.
Meanwhile, input cost inflation accelerated sharply from the 15-month low recorded in July. Survey respondents generally attributed higher cost burdens to greater fuel prices. In line with stronger cost inflation, prices charged by service providers also increased at a faster pace in August.
Adjusted for seasonal influences, the Markit Flash U.S. Composite PMI Output Index dipped from 60.6 in July to 58.8 in August, its lowest reading for three months. The composite index is based on original survey data from the Markit U.S. Services PMI and the Markit U.S. Manufacturing PMI.
Slower overall output growth largely reflected a moderation in the service sector, as manufacturing production expanded at a similarly sharp pace to that seen in July. Meanwhile, latest data pointed to a solid increase in private sector payroll numbers, but the rate of employment growth remained weaker than June’s post-crisis peak.
