U.S. service sector activity improves significantly in October

The U.S. service sector improved significantly in the October, showed the survey data. The seasonally adjusted Markit Flash U.S. Services PMI rose to 54.8 in October from 52.3 in September. The business activity index hinted at a strong growth in service sector output in the month. It was the highest expansion since November 2015. This is in contrast to the weak growth patterns witnessed through the September quarter.

According to service providers, rebound in clients’ willingness to spend and the supportive domestic economic conditions have supported the recent upturn in the business activity. This is seen in new order growth, which also expanded for the first time in three months and was the most rapid growth since November 2015.

Some survey respondents noted greater positivity in business and a corresponding increase in investment spending amongst clients. Increased levels of incoming new work led to an additional increase in unfinished business at service sector firms in October. Although just modestly, the pace of backlog accumulation was the joint-fastest recorded since April 2015, stated Markit.

Service providers signalled that cautious staff hiring patterns continued in October despite more robust business activity growth. Overall, job creation rose just slightly from the three-and-a-half year low registered last month.

Service sector firms noted a strong rise in their average cost burdens in October. The pace of input price inflation was the most rapid since May; however, it was still more subdued than seen on average since the survey started in late-2009. Meanwhile, service providers registered a moderate increase in their average prices charged.

Furthermore, positivity in business throughout the service economy rebounded sharply in October that resumed the general upward trend witnessed since the index reached a post-crisis low in June. The October reading hinted at the greatest degree of sentiment regarding the 12-month business outlook since August 2015.

Anecdotal evidence implied that hopes of a rebound in the U.S. economic conditions, along with the latest signs of an improvement in client spending, had added to an improvement in business sentiment in October, said Markit.