US Markit Services PMI Records Rise to 54.8 in October

The seasonally adjusted Markit Flash U.S. composite PMI Output Index registered 54.9 in October, up from 52.3 in September and above the 50.0 no-change value for the eighth month running. It's an 8th consecutive month of expansion. It was 54.8 a year ago, and is the highest reading since last November.

Gains were broad-based with prices charged rising to 51.7 versus the prior 50.7, and is the strongest since November making it the strongest pace of growth in the services sector in over 10 months. The latest survey also revealed an upturn in confidence towards the year-ahead business outlook.

Markit's flash PMI suggests that the US economy is growing at an annualized rate of around 2% at the start of Q4.

Service providers noted that supportive domestic economic conditions and an improvement in clients’ willingness to spend had underpinned the latest upturn in business activity. Reflecting this, new order growth also accelerated for the first time in three months and was the fastest since November 2015. Some survey respondents commented on greater business optimism and a corresponding rise in investment spending among clients.

Service sector companies also reported a solid increase in their average cost burdens during October. The rate of input price inflation was the fastest since May, but still weaker than seen on average since the survey began in late-2009.

Despite stronger business activity growth, service providers indicated that cautious staff hiring patterns persisted in October. Measured overall, job creation picked up only slightly from the three-and-a-half-year low recorded in September. While some firms sought to boost their payroll numbers in response to rising workloads, there were also reports that efforts to reduce costs had led to the non-replacement of voluntary leavers.

The latest survey also revealed an upturn in confidence towards the year-ahead business outlook, with service providers reporting the strongest optimism since August 2015.

Tim Moore, a senior economist at IHS Markit said:

“The latest survey data reveal a decisive shift in growth momentum across the U.S. service sector, which mirrors the more robust manufacturing performance seen during October. Taken together, the ‘flash’ PMIs suggest that the economy is growing at an annualized rate of around 2% at the start of the fourth quarter. Service providers experienced the fastest upturn in new business volumes since late-2015, which survey respondents linked to improving domestic economic conditions and signs of greater business investment in particular. That said, job creation remained relatively subdued in October, with firms reporting cautious hiring plans and efforts to alleviate pressures on margins. October’s survey findings contained positive signs for near-term growth prospects, with service sector companies the most upbeat about the business outlook since August 2015. Moreover, the month-to-month rise in this index was one of the largest seen over the past two years.”