US services growth remains robust, though future expectations ease
US services sector activity strengthened further in September, a closely followed survey indicated on Wednesday, with a slight easing in the rate of growth that was expected due to disruption caused by hurricanes Harvey and Irma.
IHS Markit's services purchasing managers’ index picked up modestly to 55.3 from the 55.1 level a month earlier, which was better than the market expected.
The PMI reading meant the composite index for September inched up to 54.8 from 54.6.
Levels of current activity and inflows of new work were both strong compared to the average seen over the past two years, even though the overall rate of growth in September was down slightly on August.
Continued output growth of output and new orders supported solid increases in staffing levels, while new business received by service sector firms expanded further in September but again at a slightly slower rate of growth.
A low point was that expectations for activity in the upcoming 12 months slipped to a seven-month low.
Given the disruption caused by recent hurricanes, some pull-back in business activity was understandable, said Chris Williamson, Markit's chief business economist, so the resilient reading made for encouraging reading.
“Looked at alongside the manufacturing PMI, the survey data point to GDP rising at an annualised rate of just over 2% in the third quarter. Growth is largely reliant on the services economy, however, as manufacturing lags behind, struggling in part due to the strong dollar."
He said while a return to normal business conditions after the hurricanes could boost growth in the fourth quarter, he said the drop in optimism about future activity was "worrying" and suggested companies have become increasingly cautious about the outlook.
“However, while optimism has slipped, the ‘hard’ survey data on recent output, new orders and hiring trends remain solid. Combined with the further upturn in price pressures seen in September, the survey data will further fuel expectations that the Fed will be keen to hike interest rates again before the year is out. Average prices charged for goods and services rose at the fastest rate for three years in September, though it’s not yet clear how much of the rise reflected short-term hurricane effects.”