US service sector's business activity rises in June

Business activity throughout the US service sector grew in June, assisted by rapid growth of new work since the beginning of 2016. But the momentum of growth continued to be subdued in comparison to its post-crisis trend that contributed to a deceleration in job creation for the third consecutive month.

The seasonally adjusted Markit US Services Business Activity Index rose marginally to 51.4 in June from May’s 51.3. The index has hinted at additional growth of service sector output.

The headline index, on average was slightly up in the second quarter of 2016 from the first quarter of 2016. According to survey respondents, the client spending improved; however, there were reports that weak business confidence and increased economic uncertainty has blocked growth in June, noted Markit.

The final seasonally adjusted Markit U.S. Composite PMI Output Index rose to 51.2 in June from May’s 50.9, but continued to remain below the post-crisis average. Both service sector activity and manufacturing production recorded growth in June.

New work received by service providers grew at a moderate rate in June, while the recent upturn was the most rapid since January. But the growth pace continued to be weaker than the post-crisis trend. This led to another reduction in working-hand throughout the service economy.

The number of payrolls rose in the service sector in June, continuing the upward trend witnessed in every month since March 2010. But the pace of job expansion alleviated to the weakest in 17 months, with companies noting that economic uncertainty and lack of operating capacity has led to more cautious hiring of the staff, added Markit.

The balance of service providers anticipating an increase in business activity in the next 12 months reached a new record low in June. Business optimism has dropped in four of the past five months. The general economic uncertainty and the upcoming presidential election is likely to have been a drag on business confidence in June.

According to the latest data, input cost inflation likely rose moderately throughout the service economy. Higher operating costs were partially connected to increased fuel prices.

But the overall input price inflation has alleviated to a three month low in June. Meanwhile, output charge inflation continued to be just marginal. Service sector companies noted that weak client demand had restricted their ability to pass on higher costs to clients.