Growth at U.S. Service Firms Quickens While Employment Cools

(Bloomberg) --

Growth at U.S. service industries in August comfortably topped expectations on the sharpest monthly rebound in business activity since early 2008, favorable figures that were tempered by a slowdown in hiring.

The non-manufacturing index advanced to a three-month high of 56.4, exceeding the most optimistic forecast in a Bloomberg survey of economists, Institute for Supply Management data showed Thursday. That compares with the prior month’s reading of 53.7 that was the weakest since August 2016, and the median estimate of economists for a slight increase to 54.

Key Takeaways

• The report may help mitigate near-term recession concerns brought on by contraction in manufacturing as producers wrestle with poor global demand and an escalating trade war. With the August rebound, the gauge of service industries that make up about 90% of the economy is in line with its six-month average.
• The ISM’s index of business activity among non-manufacturers, which parallels the group’s measure of factory production, increased to 61.5 in August from 53.1, the largest single-month advance since February 2008. Indexes higher than 50 indicate expansion. A measure of new orders climbed to a six-month high of 60.3.
• At the same time, the steady slowdown in business activity and orders since their highs in February may just now be filtering through into labor demand. The ISM’s gauge of services employment tumbled 3.1 points in August to 53.1, the lowest reading since March 2017, following a three-year low in ISM’s employment index for manufacturers.
• Other reports Thursday suggested the labor market is holding up, adding to mixed signs ahead of Friday’s jobs report. The ADP Research Institute said companies added the most jobs in four months in August, while Labor Department figures showed filings for unemployment benefits were little changed last week.

Official’s View

With the most recent tariffs targeting more consumer products, “September, October will be the tell-tale sign” of the impact on service providers, Anthony Nieves, chairman of the Institute for Supply Management non-manufacturing business survey committee, said on a call with reporters. He noted a respondent was already adding to inventories in anticipation of price increases.

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• Separately, a gauge of service industries business expectations from IHS Markit fell in August to the lowest level since the survey started in late 2009, according to a report Thursday.
• The ISM’s gauge of prices paid by non-manufacturing industries climbed to 58.2 in August from 56.5.
• The measure of export orders dropped to 50.5, matching the weakest since January 2017.
• A gauge of order backlogs showed contraction for the first time since December 2016, another reason fewer service providers were looking to add workers to their payrolls.

--With assistance from Alexandre Tanzi, Chris Middleton and Reade Pickert.

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net

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