US services sector subdued as Yellen readies speech

Added 25th August 2016

The United States’ services sector recorded its weakest rise in activity since February as Federal Reserve chair Janet Yellen puts the finishing touches to her Jackson Hole speech.

US services sector subdued as Yellen readies speech

The Markit Flash US Services Purchasing Managers’ Index posted 50.9 in August, down from 51.4 in July but still above the 50 neutral level.

The data company also reported services payroll numbers expanded at slowest pace for 20 months.

The speech due to be delivered by Yellen in Wyoming tomorrow afternoon is sure to be heavily scrutinised for fresh hints on the timing of the much anticipated second rate rise since the 2008 crisis.

The relative weakness in services sector growth would under most circumstances lend weight to those who argue the rate should continue to be held. There are however many different data points that the Fed will factor in.

The picture is mixed, something which is reflected by the fact that the FOMC was split over whether to raise rates in its July meeting.

Chief business economist at Markit Chris Williamson said: “The ongoing lacklustre economic growth signalled by the flash PMI suggests GDP growth is failing to accelerate in the third quarter from the weak 1.2% pace seen in the second quarter. Historical comparisons indicate that the PMI is signalling an annualised GDP growth rate of just under 1% in the third quarter, based on the data for July and August."

“With job creation also waning alongside subdued price pressures, the survey data will fuel expectations that the Fed will be in no rush to tighten policy again,” he continued. “However, as anecdotal evidence from the survey suggests that business activity is being dampened by uncertainty due to the upcoming presidential election, there’s a good chance that the economy will pick up speed again after the vote, leaving a December rate hike on the table.”

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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