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.