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US nonmanufacturing sector growth rebounds more than expected in August

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US nonmanufacturing sector growth rebounds more than expected in August

The U.S. nonmanufacturing sector recovered strongly in August after growth eased in July, but industries continued to cite the impact of new tariffs on businesses, according to the latest survey data from the Institute for Supply Management.

The ISM nonmanufacturing index came in at 58.5% in August, higher than Econoday's projected reading of 56.8% and the July estimate of 55.7%.

Sixteen nonmanufacturing industries reported growth in August, according to ISM.

"There was a strong rebound for the non-manufacturing sector in August after growth 'cooled off' in July," said Anthony Nieves, chair of the ISM non-manufacturing business survey committee.

"Logistics, tariffs and employment resources continue to have an impact on many of the respective industries," he added. "Overall, the respondents remain positive about business conditions and the economy."

The measures for nonmanufacturing business activity, new orders and employment recorded monthly gains. The prices index edged down, indicating that prices rose for the 30th straight month in August.

"The global tariff war, [with] steel in particular, has driven the cost of goods higher," one survey respondent from the mining industry said, according to ISM.

"Since we are a services business, the tariffs have little impact [at this point] but are nonetheless a consideration," a respondent from the retail trade industry said. "We do harbor future concerns about the general cost of goods from overseas and the effects on consumer pricing."

Meanwhile, the seasonally adjusted final IHS Markit U.S. services business activity index came in at 54.8 in August, down from 56.0 in July. Econoday expected the index to remain unchanged from the initial reading of 55.2.

IHS Markit said greater client demand and opening of new facilities drove output growth, which was at its weakest pace since April.

New business growth among services firms fell to an eight-month low in August, and employment growth was at its weakest in seven months.

With the revised data from both manufacturing and services sectors, the seasonally adjusted IHS Markit U.S. composite purchasing managers' index for August now stands at a final reading of 54.7, a five-month low. The index was lower than the initial estimate of 55.0 and the July reading of 55.7.

The weaker results indicate that third-quarter growth may not match the 4.2% GDP expansion in the second quarter, according to IHS Markit chief business economist Chris Williamson.

"The survey data so far for the third quarter signal annualized GDP growth of just under 3.0%," Williamson said. "However, further momentum was lost in August, and the weakest rise in new orders for goods and services for eight months suggests growth could wane further in September."