U.S. Services Sector Expansion Pace Quickens in August -- IHS Markit

By Xavier Fontdegloria

Activity in the U.S. services sector expanded at a quicker pace in August compared with July as output rose at the sharpest rate for nearly one and a half years, data from IHS Markit showed Thursday.

The final reading for the U.S. Services Purchasing Managers' Index for August was 55.0, sharply up from the 50.0 level registered in July, and slightly above the flash figure of 54.8.

Economists polled by The Wall Street Journal expected the indicator to come in at 54.7.

Data from IHS Markit confirm the first expansion in service sector business activity since the start of 2020, and a rate of growth that was the fastest since March 2019.

The U.S. Services PMI is a survey-based measure of activity in industries such as communications, finances or consumer services. A level above 50 indicates expansion, while a reading below 50 signals contraction.

Contributing to the rise in business activity was a solid increase in new sales in August. Growth in new business was commonly attributed to rising client demand and increased marketing activity, with the rate of expansion being the fastest since July 2019, IHS Markit said.

As a result, firms increased their workforce numbers sharply to cope with greater pressure on capacity. The sharp increase in staffing numbers was the quickest since June 2014, the report said.

Combined with the stronger picture emerging from manufacturing in August, the improved performance of the vast service sector adds to signs that the third quarter will see an impressive rebound in the economy from the collapse seen in the second quarter, said Chris Williamson, chief business economist at IHS Markit.

However, he said, the survey also highlights how the rebound is very uneven and the recovery path remains highly uncertain.

"August's growth was driven by financial and business services as well as tech firms, but consumer-facing sectors such as travel, tourism and recreation remained firmly in decline due to the need for ongoing social distancing," Mr. Williamson said.

The outlook for output over the coming year among service providers softened in August from that seen in July, but the level of sentiment was the second-highest since April 2019, IHS Markit said.

IHS Markit said the Composite PMI Index was 54.6 in August, up from 50.3 in July, signalling a strong upturn in business activity.

Write to Xavier Fontdegloria at [e-mail]