US service sector growth remains weak in August, service providers upbeat on growth ahead

Service providers in the US showed another month of weak growth in August. Business activity, employment and new orders all rose at a moderate pace as compared with July. Seasonally adjusted, the Markit Flash US Services PMI Business Activity Index came in at 50.9 in August, down from July’s 51.4 and lowest since February.

Subdued growth in business activity was predominantly due to muted gains in new business. Reflecting this, the latest data hinted that the new work grew at the slowest pace since May and continued to be subdued as compared to its post-crisis trend. This led to a renewed deceleration in job creation in August, with numbers of payroll increasing at the least marked rate since December 2014.

Certain companies stated that weak demand conditions and the requirement to lower costs had resulted in more cautions staff hiring plans and the non-replacement of leavers, stated Markit Economics. August data hinted at additional rise in unfinished work at service sector firms that was partially connected to weaker employment growth.

In the meantime, the recent survey data showed just a moderate gain in average cost burdens in August. Service providers commented on higher staff costs and food prices. But the overall rate of input price inflation continued to be weaker than its post-crisis trend. The increase in average prices charged by service sector firms was also at a relatively weaker pace.

Looking ahead, services providers are overall optimistic regarding their prospects for growth in the next 12 months. The degree of sentiment was little changed since July and continued to be above the survey-record low witnessed in June.