U.S. service sector business growth remains strong in June

Strong June survey data showed that the U.S. service sector saw its most robust quarter for three years. The seasonally adjusted final IHS Markit U.S. Services Business Activity Index dropped marginally to 56.5 in June from May’s 56.8, but the rise in output was the second-fastest since April 2015. Panellists attributed the upturn to greater client demand and the acquisition of new customers. The average index reading in the second quarter came in at 56, marking the strongest quarterly growth in three years.

New business received also surged, in spite of the pace of rise softening to a three-month low. The rate of the latest upturn was above the series trend and broadly linked to increased referrals from current clients and favourable market conditions. Average cost burdens faced by service providers surged in June. The pace of input price inflation matched that seen in May and was consequently the joint-fastest since September 2013. Anecdotal evidence greatly indicated that higher costs were associated with supplier shortages and recently introduced tariffs, accompanied by widespread reports of higher fuel prices.

Reflecting improved pricing power in the midst of solid demand conditions, average charges rose further in June. The pace of inflation was one of the most rapid in the current 28-month sequence of rise. Several panel members noted that increased input costs were partially passed on to clients. As the upturn in new business continued to perform better than output, backlogs of work rose strongly. Although the pace of accumulation moderated a bit from May’s recent peak, it was the second strongest in over three years.

In the meantime, greater business requirements drove the latest increase in employment. The pace of job creation was the second most rapid since September 2015, with some companies also noting that the launch of new products underpinned hiring. In spite of easing to a three-month low, business sentiment about the year ahead remained elevated in June, driven by strong client demand and the broad-based anticipation of further order book growth.

At 15:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was bearish at -95.7706. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex