US services activity rises faster but jobs growth slacks

Added 27th September 2016

September data from the Markit Flash United States Services Purchasing Managers’ Index painted a mixed picture of the sector, with sharply improving activity offset by a slowdown in new business and job growth.

 US services activity rises faster but jobs growth slacks

The US Services PMI rose to 51.9 during September from 51.0 the previous month, the fastest monthly rise in business activity since April, Markit confirmed. This represents the seventh consecutive month of business activity growth within the service industry, though Markit called the growth “still relatively modest.”

Still, the index easily outperformed analysts’ expectations that it would only increase to 51.1 over the month.

“The service sector sent mixed signals in September with faster growth of activity during the month offset by gloomy forward-looking indicators,” said Chris Williamson chief business economist at IHS Markit.

The slackened pace of new orders growth was one such disconcerting sign in Markit’s data, which subsequently led to the weakest rate of job creation in three and a half years. While staff levels continued to rise, companies reacted to the sector’s four-month low in new business inflows by easing up on the hiring front significantly. This is the second consecutive month employment growth has eased up.

Inflationary pressures also eased both with regards to input and output prices, Markit said. In particular, the rate of input cost inflation slowed to a 19-month low.

Interestingly, despite the increase in activity within the sector, the confidence levels of companies dipped, matching the record lows seen in June.  

“What’s more, even with the latest uptick in activity, the overall rate of economic growth remains subdued,” Williamson added. “Add these service sector results to the manufacturing data and the PMI surveys suggest that the economy is growing at an annualised rate of only around 1% again in the third quarter.”

Although, Williamson suspects the September slowdown could be a natural symptom of the economy reaching full employment, he finds the results are lacklustre compared with encouraging growth earlier this year. 

“The slowdown in hiring means the survey results are consistent with a 120,000 rise in non-farm payrolls in September, which is a solid rate of expansion but somewhat disappointing compared to the gains seen earlier in the year,” he said. 

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