Services Sector Activity Expands More Than Expected In August, But Employment Growth Softens

The U.S. services sector posted a stronger-than-expected expansion last month, easing concerns about a potential economic slowdown affecting the country’s largest economic sector.

The Services Purchasing Managers’ Index (PMI) barometer rose from 51.4% to 51.5%, outpacing expectations of 51.1%, according to data released Thursday by the Institute for Supply Management (ISM).

In a separate report from S&P Global, business sentiment in the U.S. private sector showed improvement in August, surpassing initial estimates. The S&P Global Composite PMI was revised upward from 54.1 to 54.6, while the Services PMI also increased, rising from 55.2 to 55.7, the highest in two-and-a-half years.

July ISM Services PMI Report: Key Highlights

• The ISM Services PMI rose from 51.4% to 51.5% in August, above market expectations of 51.1% as monitored by TradingEconomics.
• The subindex for Business Activity eased from 54.5% to 53.5% in August.
• The subindex for New Orders rose from 52.4% to 53% in August, outpacing consensus estimates of 51.9%.
• The subindex for Prices rose from 57% to 57.3%, above the predicted 56%.
• The subindex for Employment fell from 51.1% to 50.2%, below the expected 50.5%.

Read also: Private Employment Grows By 99,000 In August, Sharply Misses Forecasts Of 140,000: ‘The Labor Market Overall Is Softening’

Economist Takeaways

"Slow-to-moderate growth was cited across many industries, while ongoing high costs and interest-rate pressures were often mentioned as negatively impacting business performance and driving softness in sales and traffic," Steve Miller, chair of the ISM Services Business Survey Committee, said.

In a more optimistic remark, Chris Williamson, chief business economist at S&P Global Market Intelligence, said “an improvement in the headline services PMI to its highest for nearly two-and-a-half years provides further encouraging evidence that the U.S. economy is enjoying robust economic growth in the third quarter, adding to signs of a soft landing.”

Several headwinds could potentially hinder growth in the coming months, according to Williamson. Business optimism and investment are being tempered by uncertainty surrounding the outcome of the presidential election. And hiring is being limited by ongoing labor shortages, which continue to drive up wage pressures.

Read Next:

• Could August Jobs Numbers Keep Recession Fears At Bay? ‘This Time Is Different,’ Analyst Says

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