U.S. service providers indicated a sustained rebound in business activity and employment numbers during August. New business volumes increased at a solid pace, but the latest rise was the least marked for three months, with some firms noting that heightened economic uncertainty had weighed on client spending patterns. Meanwhile, lower fuel prices contributed to a further slowdown in input cost inflation during August and average prices charged by service providers fell for the first time since June 2013.
Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index posted 56.1 in August, above the earlier ‘flash’ reading (55.2) and up from 55.7 in July, to signal the sharpest pace of expansion since May. Moreover, the index has now registered above the 50.0 no-change threshold for 22 consecutive months. Anecdotal evidence from survey respondents suggested that improving domestic economic conditions remained a key support to business activity growth in August.
At 55.7 in August (earlier flash reading: 55.0), the seasonally adjusted final Markit U.S. Composite PMI™ Output Index was unchanged since July, to signal a further robust pace of expansion. The average index reading so far in Q3 2015 is only fractionally lower than that seen in the second quarter (55.9). August data indicated that faster service sector output growth helped to offset a slower expansion of manufacturing production.
In contrast to the trend for business activity, service providers signalled a slowdown in new order growth from the three-month high recorded in July. Moreover, the latest expansion of incoming new work was the joint-weakest since January. A number of firms noted that the uncertain global business outlook had weighed on client spending patterns in August. Softer new business growth contributed to a reduction in unfinished work at service sector companies for the second time in the past three months. Although only marginal, the latest decline in backlogs of work was the most marked since April 2014.
August data indicated another robust upturn in payroll numbers across the service economy, which marked five-and-a-half years of sustained job creation. Moreover, the latest rise in staff numbers was the fastest since May, which survey respondents linked to new product launches and increased workloads.
Meanwhile, service providers signalled a moderation in cost pressures during August, helped in part by lower fuel prices. The latest increase in overall input costs was the slowest since March. Average prices charged by service sector firms decreased in August and, although only marginal, the rate of decline was the fastest since November 2010.