The rate of expansion in business activity at U.S. service providers picked up for the first time in three months during September, but remained relatively modest. Meanwhile, growth of new orders eased to a four-month low and companies reacted to modest inflows of new work by reducing their rate of hiring.
There was no sign of inflationary pressures building during the month as both input costs and output prices rose at weaker rates than in August. A dip in confidence was also registered in the latest survey period.
Adjusted for seasonal influences, the Markit Flash U.S. Services PMI™ Business Activity Index rose to 51.9 in September from the previous month’s final reading of 51.0. This signalled the fastest monthly rise in activity since April, albeit one that was still relatively modest. Activity has now increased in each of the past seven months. Where higher activity was recorded, this was widely linked by panellists to ongoing new business growth.
However, although continuing to increase during September, new business was up only modestly compared to August. In fact, the rate of growth eased to a four-month low. The pace of accumulation in backlogs of work also eased and was the slowest in the current three-month sequence of rising outstanding business.
A weaker expansion of new business had a negative impact on employment growth in September. Staffing levels continued to rise, but the latest increase was only slight and the slowest since March 2013. The rate of job creation has now eased in two consecutive months.
The rate of input cost inflation slowed to a 19-month low, with input prices up only slightly compared with August. A similar trend was recorded with respect to output prices, which rose only marginally and at the weakest pace since April. A number of firms reported having lowered their charges in an effort to try and secure more new business.
Companies in the service sector registered a drop in confidence in the latest survey period. Although still predicting a rise in activity over the coming 12 months, optimism was the lowest since the series record low seen in June. Those firms that expected a rise in activity over the coming year often linked this to hopes that business would pick up. There were also predictions that new product development would bear fruit.
The seasonally adjusted Markit Flash U.S. Composite PMI Output Index ticked up to 52.0 in September from 51.5 in August. This pointed to the fastest monthly increase in output for five months, albeit one that was still relatively modest.
The service sector saw growth of activity pick up during the month (‘flash’ index at 51.9 in September), while manufacturing firms registered a weaker expansion of production (‘flash’ output index at 52.3).
Chris Williamson, Chief Business Economist at IHS Markit:
“… even with the latest uptick in activity, the overall rate of economic growth remains subdued. 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.
“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.
“The slowdown in hiring is perhaps a natural symptom of the economy reaching full employment, but companies also reported a reduced appetite to hire due to weaker inflows of new business and worries about the outlook.