U.S. services sector activity accelerates in August

Investing.com - The U.S. services sector gained some speed in August, although employment in this crucial segment of the U.S. economy remained subdued, reflecting a possible cooling in the labor market.

The Institute for Supply Management’s purchasing managers’ index for services -- which account for more than two-third of U.S. economic output -- came in at 52.0, surpassing forecasts of 50.9 and July’s mark of 50.1. A reading above 50 indicates expansion.

It was the third straight month of growth for the gauge, even as worries surround the impact of President Donald Trump’s sweeping tariffs on the wider economy.

A metric tracking new orders climbed to 56.0 from 50.3 in July. The pick-up in demand was accompanied by a slight slowdown in a measure of prices paid by services companies, indicating that inflationary pressures may be hovering around the sector. Services inflation has shown recent signs of heating up recently, exacerbating fears around the impact of Trump’s tariffs on prices.

"The tick down in the prices paid index is a relief, but still leaves the index at a level consistent with a renewed acceleration in ’supercore’ inflation as tariff effects continue to bleed into other areas of the economy," said Bradley Saunders, North America Economist at Capital Economics, in a note.

Meanwhile, the ISM’s services employment survey stayed firmly within contraction territory, joining other labor market data points which have suggested a potential easing in American job market momentum.

Elsewhere on Thursday, private-sector hiring increased by 54,000 jobs in August, less than economists’ forecasts of 73,000 and down from a slightly upwardly-revised mark of 106,000 in July. Weekly first-time claims for unemployment benefits also came in at 237,000, above projections and not far from the prior total.

The numbers did little to derail expectations that the Federal Reserve will slash interest rates later this month, with the CME’s FedWatch Tool showing that a more than 95% chance of a 25-basis point reduction at the central bank’s September 16-17 gathering. Fed officials have indicated a desire to bring down borrowing costs to help encourage spending and investment, but such a move could risk pushing up inflation. 

Much of the attention in markets now shifts to Friday, when all-important U.S. nonfarm payrolls figures for August are anticipated to be released. Economists expect the U.S. to have added 75,000 roles during the month, compared to 73,000 in July.