U.S. Services Sector Activity Remains Steady in August

WASHINGTON (Reuters) – U.S. services sector activity was steady in August, although employment gains slowed, indicating a softening labor market.

The Institute for Supply Management (ISM) reported on Thursday that its non-manufacturing purchasing managers’ index (PMI) was little changed at 51.5 last month compared to 51.4 in July.

A PMI reading above 50 indicates growth in the services sector, which constitutes more than two-thirds of the economy. The ISM considers readings above 49 over time as indicative of overall economic expansion.

Economists surveyed by Reuters had anticipated the services PMI dropping to 51.1. The report, combined with strong consumer spending in July, suggests the economy is continuing to expand, albeit at a more moderate pace than last year.

Concerns about a recession were ignited by a jump in the unemployment rate to 4.3% in July, the highest in nearly three years, raising the possibility of a 50-basis point interest rate cut this month as the Federal Reserve begins its easing cycle.

The ISM survey revealed that the new orders measure increased to 53.0 from 52.4 in July, while the services employment measure fell to 50.2 from 51.1.

Although the labor market is slowing, it is not deteriorating rapidly. Government data released Wednesday indicated there were 1.07 job openings for every unemployed individual in July, down from 1.16 in June.

Job growth is expected to have accelerated in August, according to a Reuters survey that predicts non-farm payrolls would increase by 160,000 last month, following a rise of 114,000 in July. The unemployment rate is expected to decrease to 4.2%.

Services inflation showed little change last month, with the ISM’s prices paid measure for services inputs edging up to 57.3 from 57.0 in July. Price pressures in the economy are easing as higher borrowing costs reduce demand.