Investor Jitters Rise: US Services Sector Sends Puzzling Signals in August

The powerhouse of the American economy, the services sector, continued to show signs of resilience in August, but discrepancies in data collection methods are beginning to emerge.

The ISM Services PMI recorded its eight straight month of expansion, coming in at 54.5, the fastest pace of growth since February 2023. The outcome was 1.8 percentage points higher than July's reading of 52.7, and well above economist expectations of 52.5.

Surprisingly, the latest Service PMI data measured by S&P Global was downwardly revised from an initial estimate of 51 to 50.5 in August, indicating only a marginally pace of expansion and the lowest over the last seven months.

Markets negatively reacted on Wednesday, with the SPDR S&P 500 ETF Trust SPY falling 0.5% as of 10:15 a.m. ET in New York. Treasury yields rose, with the two-year yield up 12 basis points on the day to 5%, amid worries that the Fed may keep a rate hike option open for the coming months.

ISM: Service Growth Accelerates In August

As noted by Anthony Nieves, who chairs the ISM Services Business Survey Committee, the services sector has seen an uptick in its growth rate.

While sentiments among Business Survey Committee respondents differ across industries, a majority of panelists expressed optimism regarding both business and economic conditions.

Accelerated growth rates were observed in business activity (57.3 compared to 57.1), new orders (57.5 compared to 55), employment (54.7 compared to 50.7) and inventories (57.7 compared to 50.4). Additionally, supplier deliveries showed a slight increase (48.5 compared to 48.1).

S&P Global: US Economic Growth Stalls In August

According to Chris Williamson, chief business economist at S&P Global Market Intelligence, “the survey data send a hint of rising stagflation risks, as stubborn price pressures are accompanied by a near-stalling
of business activity.”

Companies are more frequently noting that customers are becoming hesitant to spend due to bleaker outlooks, with the impact of elevated interest rates and rising living costs becoming more evident, the report showed. Weaker demand conditions prompted companies to scale back their hiring efforts, resulting in the slowest increase in employment since October 2022.

The final S&P Global US Composite PMI Output Index came in at 50.2 in August, down from 52 in July and below the initial estimate of 50.4, signaling only a fractional increase in business activity at U.S. private
sector firms. Last week the Manufacturing PMI came in at 47.9, down from July’s 49 print, indicating a worsening in the pace of contraction.

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