U.S. Services Growth Hits Five-Year High

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U.S. service-sector activity expanded in September at the fastest pace in more than five years, with technology businesses leading a broad advance as stronger demand encouraged companies to increase hiring, according to a survey released Monday by S&P Global.

Strong Expansion Across Sectors

The Services PMI Business Activity Index rose to 58.8 from 56.5 in August, marking its fourth consecutive monthly increase and the strongest expansion since July 2021. Readings above 50 indicate growth compared with the previous month.

Activity increased across all five broad services sectors covered by the survey for the first time in ten months. Information and communication businesses reported by far the strongest expansion, while transportation and storage returned to growth.

Consumer and Industrial Growth Accelerates

“Tech companies are reporting by far the strongest growth but the rising tide is now lifting all boats as far as the major sectors are concerned,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Williamson said growth was also accelerating among consumer-facing businesses, industrials, and healthcare companies, while financial services continued to record solid growth.

Strong Demand and Job Creation

The report showed a sharp strengthening in demand. New orders increased at the fastest pace in four-and-a-half years, with respondents reporting particular strength in domestic business.

Export orders also increased for a second consecutive month, although their growth was much slower than the rise in total new business. The pace of export-order growth matched August’s 20-month high.

Companies responded to rising workloads by adding workers for a third consecutive month. The pace of services job creation was the strongest since June 2022. Some businesses reported that they had been able to fill previously vacant positions.

Backlogs and Inflation Concerns

Even with the additional workers, companies struggled to keep pace with incoming orders. Unfinished business accumulated for a nineteenth consecutive month, with backlogs increasing at the fastest rate in almost four-and-a-half years and among the strongest rates recorded by the survey.

The strength extended beyond services. S&P Global’s Composite PMI, which combines manufacturing and services output, rose to 58.4 from 56.0 in August. Both sectors recorded accelerating growth, producing the strongest overall expansion in more than five years.

Positive Outlook and Rising Costs

“Combined with the encouragingly solid manufacturing PMI, the strong service sector expansion points to economic growth of around 4% in the third quarter and 5% in September alone, the latter hinting at accelerating momentum into the fourth quarter,” Williamson said.

Those growth estimates reflect S&P Global’s interpretation of its survey results rather than an official measurement of gross domestic product.

Service providers also became more optimistic about business activity over the coming year, with expectations reaching a one-year high. Companies cited new products, new clients, referrals from existing customers, and expectations of further increases in orders. Some also expressed hopes that cost pressures would ease.

September nevertheless brought a sharp increase in reported operating costs. After slowing to a 16-month low in August, services input-cost growth accelerated to its fastest pace since November 2022.

Respondents widely reported higher gas prices and associated increases in transportation costs. Some also cited higher labor costs.

Price Increases and Inflation Concerns

Businesses increased the prices they charged at a faster pace as well. Services selling-price growth was the second-strongest in just over a year, exceeded only by July.

Across manufacturing and services combined, input costs increased at the fastest pace since October 2022. Selling prices also rose more quickly.

Williamson said the survey’s price measures would fuel concerns about the economy running too hot, interpreting them as a signal of continued inflation pressures above the Federal Reserve’s 2 percent target.

Source: Breitbart