U.S. service sector’s business activity continues to rise in September, PMI index at 54.6

The U.S. service sector’s business activity has seen a strong upturn, according to the September PMI data. The seasonally adjusted final Services PMI index came in at 54.6 in September, slightly down from August’s 55. The strong rise in business activity was attributed to stronger demand conditions. The pace of growth was the second most rapid since March 2019 and strong overall in spite of weakening from that seen in August.

Companies increased their workforce numbers in September. The pace of job creation was solid overall and the second-quickest since February 2019, as many firms stated that insufficient capacity to process new orders had driven hiring. Meanwhile, backlogs of work rose for the third consecutive month and at a strong rate.

In the meantime, input costs increased at a sharp, albeit weaker rate in September. Service providers noted that higher input prices were because of greater wage and equipment costs, with several highlighting the uptick in PPE prices. The pace of inflation was more rapid than the series trend and among the quickest since November 2018. Reflecting higher input prices and sharper new business growth, companies were able to pass on cost burdens to their customers through greater output charges. Selling prices rose at the most rapid rate since September 2018 and outpaced the rise in cost burdens, as companies took advantage of stronger demand conditions.

However, business expectations about the outlook for output over the coming 12 months dropped at the end of the third quarter. Although optimistic of a rise in business activity, hesitancy among service providers reportedly stemmed from concerns relating to the ongoing COVID-19 pandemic and the effect on future demand.