According to the Institute for Supply Management (ISM), US economic activity in the services sector expanded for a second consecutive month in August. The headline Services PMI increased to 51.5, up from 51.4 in July and also bettered the market’s median estimate of 51.1.

While this sent the US Dollar Index and US Treasury yields northbound, investors continue to lean toward at least four rate cuts this year (-108 basis points of easing priced in), with -35 basis points priced in for September’s meeting. As of writing, the US Dollar Index is off worst levels and recouped most of the day’s losses.

Chair of the Institute for Supply Management Services Business Survey Committee, Steve Miller, commented: ‘The increase in the Services PMI® in August is due to all directly factoring indexes (Business Activity, New Orders, Employment and Supplier Deliveries) with readings close to or above 50 percent’.

However, Miller added: ‘Slow-to-moderate growth was cited across many industries, while ongoing high costs and interest-rate pressures were often mentioned as negatively impacting business performance and driving softness in sales and traffic’.

Key Segments (August):

The report noted that ten services industries reported growth in August, underpinned by increases in ‘Arts, Entertainment & Recreation’, ‘Mining’, ‘Transportation & Warehousing’, and ‘Other Services’. Seven industries, however, reported a decrease, led by ‘Agriculture’, ‘Forestry’, ‘Fishing & Hunting’, and ‘Retail Trade’.

• The Business Activity Index fell to 53.3, down from 54.5 in June (marks the second consecutive month in expansionary territory).

• The New Orders Index rose to 53.0 from July’s reading of 52.4, which is good news (the second consecutive month of expansion).

• The Employment Index fell to just north of the 50.0 threshold at 50.2, down from 51.1 in July (the second consecutive month of expansion). The 50.00 value separates growth from contraction in the services sector.

Of relevance, this week, job openings in the US for July fell to their lowest levels since early 2021 (though let’s remember that at the same time, the quits rate increased moderately). Today’s ADP non-farm employment change also revealed that private employment added just 99,000 jobs to the economy in August, from the downwardly revised 114,000 number in July.

Despite the drop in the ISM Services PMI being consistent with the softer jobs data, tomorrow’s headline release is expected to show job growth increased in the US for August to 160,000 from 114,000 in July. The unemployment rate is also expected to slip to 4.2% from 4.3%.

• The Prices Paid Index was little changed, increasing to 57.3 from July’s reading of 57.0.

Key Respondents:

• ‘Generally, business is good. However, there are concerns of slowing foot traffic at restaurants and other venues where our products are sold’. [Agriculture, Forestry, Fishing & Hunting]

• ‘Housing market continues to be dampened by higher borrowing costs. All segments of the industry are affected. Single-family homes for sale, build for rent, and multifamily units are all feeling the effects’. [Construction]

• ‘Activity is increasing’. [Finance & Insurance]

• ‘Business continues to be strong’. [Health Care & Social Assistance]

• ‘Overall business is improving’. [Information]

• ‘Hiring of employees, contractors and consultants continues to decline as companies look to control costs during a period of economic and political uncertainty. Employee layoffs continue across a broad range of companies and industries’. [Management of Companies & Support Services]

• ‘Steady interest rates are impacting investment in nonregulated business silos’. [Utilities]

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