U.S. service sector business activity grows strongly in October

Service sector’s business activity in the U.S. saw a solid growth. The pace of growth recovered from September’s weather-related softness, but was also buoyed by a surge in new business. The seasonally adjusted final IHS Markit US services business activity index rose to 54.8 in October from September’s 53.5. Output growth gain back the momentum to run just below the average for 2018 so far. Service providers commonly attributed the rise in business activity to increased new business and a rebound in demand after inclement weather in September.

A surge in new business drove overall output growth, with the rate of rise above the long-run series trend and close to rates seen earlier in the year. Survey responses showed that the upturn stemmed from more favourable demand conditions and new product launches. In line with a steep rise in new business, staffing levels rose further in October. However, the pace of job creation lost some momentum and eased to a nine-month low. Some respondents stated that difficulties finding suitable candidates had restricted employment growth. Therefore, capacity pressures remained, with backlogs rising further.

In the meantime, business sentiment rebounded from September’s recent low in October, with the level of optimism rebounding to a five-month high. The data for October saw a further surge in input costs paid by service providers. Furthermore, the pace of input price inflation accelerated to the most rapid in just over five years. Several companies noted that greater input prices, including wages, and higher borrowing costs were behind the third acceleration in input cost inflation in as several months.

Companies often sought to pass increased expenses on to clients through greater output charges, facilitated by the recent strength of demand. The pace of charge inflation was the second-fastest in the nine-year series history.

At 18:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -68.0524. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex