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US service economy remains in expansion mode in September: Markit

H.S. Borji
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US service economy remains in expansion mode in September: Markit

The US service economy maintained its robust growth pace in September, as new business expanded at the fastest pace since June, contributing to a solid pick up in overall employment.

Markit Group’s flash estimate of US service activity declined to 58.5 from 59.5. 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 to 58.8 from 59.7. Earlier this week Markit said manufacturing output expanded strongly in August, leading to the fastest pace of payroll gains in two-and-a-half years. The flash manufacturing PMI estimate was little changed at 57.9.

The flash estimate represents 85 to 90 percent of total survey responses. Markit Group will post its final services PMI estimate on October 3.

September marked the eleventh consecutive month service sector activity had increased, the advance estimate revealed today. New business volumes expanded at a faster rate in September, as a stronger domestic economy kept demand for services elevated at the end of the third quarter.

The pace of job creation increased at the fastest pace since June, as new work volumes continued to increase. Work backlogs increased for the second consecutive month, Markit data showed. The rate of backlog accumulation was the fastest since the survey’s inception in October 2009.

“The US economy is enjoying its strongest spell of growth since the financial crisis,” Markit chief economist Chris Williamson said in a statement. “Although the pace of expansion slowed to a four-month low in services in September, the rate remained buoyant and accompanies a similar boom seen in manufacturing. Taken together, the two PMI surveys have posted the highest quarterly average seen since data were first collected in 2009 in the three months to September.”

The latest data suggests the US economy expanded at an annualized rate of 3.5 percent in the third quarter, Williamson added. That view is generally shared by the consensus, which expects the US economy to grow more than 3 percent annually in the third quarter, building off a stellar June quarter that saw GDP expand 4.2 percent annually.

The Commerce Department will post revised second quarter GDP estimates on Friday. Economists expect further revisions to the second quarter estimate, based on the Quarterly Services Survey, which revealed a broad pick up in service sector spending.

The US services economy posted higher revenues in virtually every sector, as healthcare spending rose 3 percent to $565.6 billion. Healthcare spending unexpectedly declined 2 percent in the first three months of the year, resulting in sharp revisions to first quarter growth.

The Federal Reserve downgraded its outlook on growth this year, as central bankers continue to piece together the latest available evidence. Top Federal Reserve officials expect the US economy to grow 2 percent to 2.2 percent this year, the September summary of economic projections revealed last week. That outlook was slightly lower than the June forecast calling for growth of 2.1 percent to 2.3 percent.

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