In August, the growth of the US services sector experienced a noteworthy acceleration, driven by an increase in new orders, according to two distinct surveys released by the Institute for Supply Management (ISM) and S&P Global. The ISM's purchasing managers' index (PMI) surged to 51.5 in August, marginally up from July's figure of 51.4, which aligned with the median estimate provided in a survey conducted by Bloomberg.
A reading exceeding 50 typically indicates that the services economy is on an upward trajectory, with the 12-month average now recorded at 51.7. Steve Miller, the chair of the ISM's services business survey committee, highlighted, "Slow-to-moderate growth was noted across numerous industries, although ongoing high costs and the pressure from interest rates continue to pose challenges that notably affect business performance and contribute to a decline in sales and foot traffic." In terms of industry performance, out of the services sectors surveyed, ten reported growth during August, while seven experienced a downturn.
The index for new orders climbed to 53 in August, up from 52.4 in July, indicating rising demand. Conversely, the business activity index witnessed a decline, dropping to 53.3 from the previous 54.5 level. Furthermore, the employment component saw a decrease, sliding down to 50.2 from July's 51.1. According to the ISM data, the services sector has seen only two months of contraction this year, specifically in April and June. TD Senior Economist Andrew Hencic commented, "The services sector continues to chug along, with the specifics being rather encouraging.
The only notable concern is the slowdown in employment growth. When considering the current phase of the business cycle, this is a relatively robust report." On a related note, S&P Global reported that its services PMI measure increased to 55.7 in August, up from July's reading of 55, surpassing Bloomberg's consensus of 55.1.
The growth in business activity during this period marked the fastest rate of expansion in almost two and a half years, bolstered by what S&P identified as stronger inflows of new orders. The S&P Global US composite PMI output index also showed positive movement, advancing to 54.6 from 54.3. However, it is worth noting that employment in the sector fell for the first time in three months, as outlined in their report. "Recent growth in services has particularly been supported by the anticipation of lower interest rates, yet various challenges may hinder growth in the upcoming months," remarked Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. Additionally, data released on Tuesday revealed that the manufacturing sector in the US remained in a state of contraction during August, attributed mainly to weakened demand impacting new orders. Williamson added, "The recent downturn in manufacturing activity is beginning to spill over into the broader economy, significantly impacting orders for industrial services.
It will be crucial to observe whether the services sector is affected by the downturn in factory activity or if a more accommodative monetary policy can elevate overall economic activity." Price: 516.11, Change: +2.80, Percent Change: +0.54.