U.S. service sector activity rises at faster rate, but new business grows modestly

The pace of growth in U.S. service providers’ business activity picked up for the first time in three months in September; however, it continued to stay relatively modest. Seasonally adjusted, the Markit Flash U.S. Services PMI Business Activity Index rose in September to 51.9 from 51 in August. This hints at the most rapid monthly increase in activity since April. Activity has now risen in each of the last seven months. Panellists attributed higher activity to ongoing new business growth, noted Markit.

But, even if the activity continues to increase in September, new business increased just modestly from August. The pace of growth slowed to a four-month low. The rate of accumulation in backlogs of work also softened and was the slowest in the current three-month sequence of rising outstanding business.

A subdued growth of new business adversely affected employment growth in September. Levels of staff continued to increase; however, the latest rise was just mild and the slowest since March 2013. The pace of job creation has eased in two straight months, stated Markit.

Meanwhile, the pace of input cost inflation decelerated to a 19-month low, with input prices rising just mildly from August. Output prices also recorded a similar trend, rising just slightly and at the weakest rate since April. Several companies stated that they have lowered their charges in an attempt to secure additional new business.

Service sector firms recorded a decline in sentiment in the latest survey period. Even if they still expect a rise in activity in the coming 12 months, optimism was the lowest since the series record low seen in June. The companies that anticipated an increase in activity in the coming year often attributed this to hopes that business might rebound. There were also forecasts that new product development might bear fruit.

Meanwhile, the seasonally adjusted Markit Flash U.S. Composite PMI Output Index rose to 52 in September from 51.5 in August. This signalled the most rapid monthly increase in output for five months, although one that is still quite modest. The service sector recorded growth of activity pick up in the month, whereas manufacturing companies recorded a subdued growth of production. The flash output index was at 52.3.