Economic activity in the US services sector posted robust gains in August, throwing more cold water on the idea that the US macro trend is fatally wounded. The headline figure for the ISM Non-Manufacturing Index retreated last month, but only moderately so—and after touching an all-time high in July (based on data that begins in 2008). Meanwhile, Markit’s US Services Purchasing Managers’ Index (PMI) for August was revised up from the previously released flash estimate. As a result, this benchmark rose to its highest level in three months in August, signaling a healthy pace of growth.
Calamity and chaos may be coming, but the search for clear signs of macro trouble in the US is still coming up short based on published economic data to date. Yes, the manufacturing sector is weak, but that’s looking like a contained problem rather than an early warning of trouble for the US economy overall. In any case, manufacturing output is still growing—tepidly, but growing nonetheless, according to Markit’s Manufacturing PMI and the ISM Manufacturing Index for August.
By contrast, the latest readings for the services sector are well above the 50.0 mark that separates growth from contraction–the ISM headline index for August is 59.0 while the Services PMI is 56.1.
When it comes to recessions, the services sector is far more important for a simple reason—this slice of the US economy reflects a far-larger slice of employment and spending. Until or if we see services tank, there’s good reason to question the idea that the US economy is destined to stumble.
“Although the manufacturing sector has been struggling in the face of weak overseas demand and the stronger dollar, the more domestically-focused service sector clearly continues to fare well amid these headwinds and, due its size, is keeping the economy ticking along at a reasonable, albeit unspectacular, rate,” says Chris Williamson, Chief Economist at Markit in today’s press release.
In other words, the warning signs arising from the recent turmoil in financial and commodities markets still have little if any support in published US economic data to date. Indeed, today’s reports on the services sector follow this morning’s encouraging numbers on jobless claims and yesterday’s news of a moderate advance in private payrolls last month via ADP’s estimate.
The opportunity to confirm the crowd’s worst-but-still-unsubstantiated fears—tomorrow’s jobs report from the US Labor Department. But at the moment, economists are expecting moderately good news. Private-sector payrolls are on track to increase by a seasonally adjusted 211,000 in August, according to Econoday.com’s consensus forecast—a decent advance that’s slightly above July’s gain.
If you’re looking for a reason to question that upbeat forecast, you certainly won’t find it in today’s numbers for the services sector.