Service Sector Sample Reports Show Mixed Results, Still Solid

Growth slowed in the services PMI sample during August, to a still solid 54.8 which compares with 55.2 for the mid-August flash and 56.0 for July.

But the details of August do in fact point to a noticeable fall-off in activity. New orders slowed to an 8-month low with backlogs falling for a second straight month and showing what the report describes as evidence of spare capacity. Hiring in the sample slowed to a 7-month low while output came in at a 4-month low and is now under the long-term trend. One plus from slowing growth is easing in inflation pressures with both input costs and selling prices moderating.

These results together with Tuesday's manufacturing PMI, which came in at 54.7, make for a 1 point dip in the PMI composite for August to 54.7 vs 55.7 in July.

...meanwhile...

ISM's non-manufacturing sample reports sharp acceleration in overall growth during August, at an index of 58.5 vs July's 55.7 which easily tops Econoday's consensus range.

Strength is centered in orders with both new orders, at 60.4, and backlog orders, at 56.5, posting strong monthly gains. And a strong gain for new export orders, up 2.5 points to 60.5, is a special plus and one that underscores the importance of service exports for the U.S. economy.

Output for the sample also rose as did employment which came in at 56.7 for a 6 tenths increase from July and which offers a hint of accelerating strength for tomorrow's employment report. But there are signs of capacity stress in the report with input costs remaining elevated and supplier deliveries continuing to lengthen.

Comments from the sample's respondents continue to stress the negatives of tariffs on costs and production though the final effects are hard to see in the data. Sixteen of 17 industries tracked in this sample posted composite growth in August led by construction and then by transportation & warehousing with agriculture the only negative.

ISM's report includes both construction and mining and may explain its better performance than this morning's PMI from Markit Economics which tracks only services. But the bottom line for August is very solid economic strength for the bulk of the nation's economy.