U.S. service sector’s activity loses momentum in August, PMI index falls to 50.7

U.S. service sector recorded a loss of momentum in August, with business activity rising at the weakest rate since the current sequence of growth started in March 2016. The seasonally adjusted final IHS Markit U.S. Service Business Activity Index dropped to 50.7 in August from July’s 53. Although still hinting at a marginal growth in business activity, the pace of rise was the slowest in the current sequence of growth and well below the long-run series trend. Several panellists implied that a slower rise in new orders held back business activity growth.

New business growth slowed from prior month’s strong rate to just a marginal rate in August that was the slowest since March 2016. When companies saw weaker books, they attributed this to less stronger corporate spending. However, some continued to state that a further rebound in consumer demand was driving the sustained growth. Meanwhile, new export orders dropped for the first time since January, and at the sharpest rise in nearly three years.

Meanwhile, input prices dropped for the first time in the series history in August. Anecdotal evidence implied the fall in costs was attributed to the recent cut in interest rates and lower purchase prices. Consequently, service providers cut their selling prices at a modest rate. The fall was the second in four month, but the most rapid since data collection started in October 2009. Panellists stated that lower charges were attributed to greater discounting in an effort to attract new clients.

Expectations towards business activity in the year ahead hit a fresh series low, as firms expressed greater worries surrounding ongoing trade wars and a slowdown throughout the wider economy. In line with a slower growth in new business, employment throughout the service sector grew just marginally in August. The pace of job creation was the weakest since February 2010 as companies showed greater reluctance to increase staffing, with the vast majority noting no change in workforce numbers.