WASHINGTON: US services sector activity accelerated in August and private employers boosted hiring, suggesting the economy continued to grow at a moderate pace despite trade tensions which have stoked financial market fears of a recession.
The upbeat reports on Thursday took some of the sting from data this week that showed the manufacturing sector contracted for the first time in August as the year-old trade war between the United States and China intensified.
But given the erosion of business confidence as a result of the trade impasse and the threat it poses to the longest economic expansion in history, the Federal Reserve is still expected to cut interest rates again this month.
The US central bank lowered borrowing costs in July, citing growing risks to the economy, now in its 11th year of expansion, from the trade fight and slowing global growth. China and the United States on Thursday agreed to hold high-level trade talks in early October in Washington, according to the Chinese commerce ministry.
“It’s tale of two cities in this economy faced with trade war uncertainty, and right now the bigger services economy is weathering the storm,” said Chris Rupkey, chief economist at MUFG in New York. “Don’t count the economy out yet.”
The Institute for Supply Management said its non-manufacturing activity index increased to a reading of 56.4 in August from 53.7 in July. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of US economic activity. Economists polled by Reuters had forecast the index would rise to 54.0 in August.
The Atlanta Fed is forecasting the economy will grow at a 1.5 per cent annualised rate in the third quarter, slowing down from a 2.0 per cent pace in the April-June period.
August’s surge in services industry activity reflected increases in measures of production and new orders. Export orders, however, fell as did imports. The ISM said 16 service industries, including retail trade, utilities and public administration, reported growth last month. Wholesale trade was the only industry reporting a decrease in growth.
But a gauge of services industry employment dropped to 53.1, the lowest level since March 2017, from 56.2 in July.
That, together with a contraction in manufacturing employment, suggests nonfarm payrolls probably increased at a steady clip in August, even though the ADP National Employment Report on Thursday showed private payrolls surging by 195,000 jobs this month after rising by 142,000 in July.
According to a Reuters survey of economists, nonfarm payrolls probably increased by 158,000 jobs last month after rising by 164,000 in July. Job growth has slowed from an average of 223,000 per month in 2018.
But the pace of employment gains remains well above the roughly 100,000 jobs needed per month to keep up with growth in the working-age population. The unemployment rate is expected to have held at 3.7 per cent in August for a third straight month.
Labour market resilience was also underscored by a third report from the Labour Department on Thursday which showed initial claims for state unemployment benefits increased 1,000 to a seasonally adjusted 217,000 for the week ended August 31. — Reuters
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