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Services Sector Growth Accelerates Amid Strong Demand, ISM, S&P Surveys Show

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Services Sector Growth Accelerates Amid Strong Demand, ISM, S&P Surveys Show

The US services sector expanded at a faster rate sequentially in August amid solid demand, two surveys showed Thursday, though the reports pointed to a contrasting employment situation.

The Institute for Supply Management's purchasing managers' index rose to 55.4 last month from 54.1 in July. The consensus was for a 54.1 print in a Bloomberg poll. A reading above 50 indicates the services sector economy is generally expanding.

The new orders index jumped to 60.9 from 57.2, while the business activity gauge rose to 61.7 from 59.1. The prices index grew 2.3 points sequentially to 72.6 in August, reaching its highest since August 2022. The employment reading ticked up to 47.8 from 47.4, but remained in the contraction territory for a second straight month, the ISM survey showed.

"As a potentially positive sign for employment, there was a slight reduction in the share of companies cutting staff levels," said Steve Miller, chair of the ISM's services business survey committee. "The business activity and new orders indexes at multiyear highs could signal a shift to increased employment in the services sector."

Separately, TD Economics said the latest ISM report not only gives the Federal Reserve "little reason to ease (monetary policy), but keeps the possibility of a rate hike in play despite weak hiring."

Markets are now pricing in a 50% probability that the Fed will increase its benchmark lending rate by 25 basis points later this month, compared with 63% Wednesday, according to the CME FedWatch tool. The probability that the central bank will keep interest rates steady rose to 50% from 37%.

A separate S&P Global (SPGI) survey showed Thursday that its services PMI rose to 56.5 in August from 54.6 the month prior, marking the strongest growth in 20 months amid robust demand. Growth in new businesses rose at the sharpest rate since the end of 2024, driven by new customer wins, according to the data provider.

Input costs and selling prices rose at slower rates last month, though inflationary pressures remain elevated. Employment growth hit the highest since January 2025, the report showed.

"Business activity growth across the private sector accelerated in August, marking a clear shift in gear for the US economy," S&P Global Market Intelligence Economist Usamah Bhatti said. "Survey data now point to (gross domestic product) growing at an annualized rate of 3% in the third quarter, up solidly from the meagre 1.5% recorded in the previous quarter."

Earlier this week, two surveys showed the US manufacturing sector continued to expand last month, with Institute for Supply Management data pointing to a slight deceleration sequentially and S&P indicating a steady growth rate.

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