U.S. service sector’s business activity growth surges in May

Business activity throughout the U.S. service sector rose at a sharp pace in May, according to the latest survey data. The seasonally adjusted final IHS Markit U.S. Services Business Activity Index rose to 56.8 from April’s 54.6. The survey data hinted at the most rapid growth since April 2015. The surge in business activity was mainly linked to more favourable economic conditions and greater client demand. Increased marketing activity and customer interest was successfully converted to client wins in May, with new business levels rising at a steep rate. Although slightly weaker than that seen in April, the pace of growth of new work was the third sharpest seen in the past three years.

Consistent with sustained upturns in business activity and new orders, service sector companies increased their hiring in May. The upturn in staffing levels was the strongest since September 2015 and above the long-run series average. However, a rebound in job creation was not enough to avert an additional rise in backlogs. More rapid rises in new business compared to output drove a strong rise in outstanding business in May. Backlogs were accumulated for the 13th straight month and the latest backlogs growth rate was the most rapid in more than three years. Panellists also noted that challenges in sourcing raw materials delayed business processes.

Inflationary pressures deepened in the month, as input cost inflation quickened to the most rapid since October 2013. Anecdotal evidence implied the latest rise in cost burdens was because of higher material inputs, often attributed to tariffs, higher interest rates and increasing energy and fuel prices. Output charges also rose at a much rapid pace, with inflation rising to a three-month high. Panellists stated that higher input costs were partially passed on to clients through greater charges. The strong rate of inflation was above the long-run series average. Finally, business sentiment continued to be strong in May, in spite of falling from April’s recent peak. Panellists implied optimism stemmed from planned investment in growth and more favourable demand conditions.

At 17:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at 50.1275. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest