US services gauge rises to 4-month high on pickup in demand

THE US service sector expanded in August at the fastest pace in 4 months amid a pickup in business activity and new orders, while price pressures continued to ease.

The Institute for Supply Management’s (ISM) services index edged up to 56.9 from 56.7, data showed on Tuesday (Sep 6). The median forecast in a Bloomberg survey of economists called for the gauge to soften to 55.3. Readings above 50 signal growth.

Measures of business activity and new orders both advanced to their strongest readings of the year, reflecting both an ongoing shift in spending habits and steady wage gains. Demand strengthened abroad as well, with export orders expanding at the fastest pace in nearly a year.

The upbeat report points to resilient and robust consumer demand for services despite high inflation, rising interest rates and general uncertainty about the economic outlook.

Fourteen services industries reported growth in August, led by mining, real estate, rental and leasing, utilities and construction.

The ISM figures stand in sharp contrast to separate figures from S&P Global. The group’s measure of service sector business activity dropped 3.6 points to 43.7, indicating the steepest contraction since May 2020.

“August saw the US economy slide into a steepening downturn, underscoring the rising risk of a deepening recession as households and business grapple with the rising cost of living and tightening financial conditions,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

Prices paid by service providers settled back to 71.5 last month, the softest print since January 2021, according to ISM. While still historically elevated, the figure adds to other signs of easing inflationary pressures.

The group’s employment index rose 1.1 points to 50.2 after contracting in the prior month, suggesting modest service-sector hiring in the month. The government’s August jobs report last week showed the smallest gain in leisure and hospitality employment since a decline at the end of 2020.

The ISM report also pointed to an easing of supply constraints. A gauge of supplier delivery times lengthened, but to a lesser degree than in the prior month. Meantime, order backlogs grew at the softest pace in 3 months. BLOOMBERG