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US Service Economy Expands at a Slower Rate in August: Markit

H.S. Borji
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US Service Economy Expands at a Slower Rate in August: Markit

The US service economy expanded at the slowest rate in three months in August, as output growth moderated from June’s multi-year high, but new business volumes remained elevated.

Markit Group’s flash estimate of US service activity declined from 60.8 to 58.5. A median estimate of economists called for a decline to 59. A reading above 50 signifies expansion in service activity, whereas a reading below that level indicates contraction.

The PMI composite – a gauge of service and manufacturing activity – dipped from 60.6 to 58.8. Earlier this month Markit said manufacturing output expanded sharply in August, as the purchasing managers’ index rose 2.2 percentage points to 58.

August marked the tenth consecutive month service sector activity had increased, the flash estimate revealed today. New business volumes rebounded from July’s three-month low, as an improving economic climate encouraged an uptick in new orders

Stronger new business growth kept optimism elevated, which encouraged a faster pace of job creation in August. The services sector is by far the largest contributor to US employment and has been at the centre of the country’s labour market recovery this year.

US employers added 209,000 nonfarm payrolls in July, following five consecutive months of above-200,000 job gains, the Labor Department reported earlier this month. The labour market has added an average of 230,000 jobs each month this year. The unemployment rate is currently at 6.2 percent.

The Labor Department will post August nonfarm payrolls and earnings data on September 5.

Services companies also said they were more confident in their business outlook, with over half of the respondents indicating they expect a rise in business activity in the year ahead. Stronger demand among both households and businesses was as a main reason for the rising confidence levels.

“The U.S. service sector continues to enjoy a strong growth phase, but the latest survey suggests the recovery has lost some momentum since hitting a post-crisis peak in June,” said Markit senior economist Tim Moore in a statement. “Output expanded at the slowest pace for three months in August, while new business growth picked up only slightly from July’s recent low.”

Despite the slight setback, the US economy is on pace for another strong quarter, Moore added. US gross domestic product expanded at an annual rate of 4 percent in the second quarter, advance government estimates showed last month.

The increase in real GDP in the April-June period was due primarily to positive contributions from personal consumption expenditures, private inventory investment, exports, government spending, residential fixed investment and nonresidential fixed investment.

The second quarter estimate is expected to be revised downward this week when the Commerce Department releases its second estimate. The revised estimate is due primarily to softer business inventories and wholesale inventories in June.

Business inventories increased 0.4 percent in June, government data showed earlier this month. Wholesale inventories increased just 0.3 percent, half the rate of forecasts. This could shave off as much as half a percentage point from the second quarter GDP estimate, economists say.

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