US service sector growth picks up

The US services sector saw a surprise acceleration in its growth in August, snapping a three-month streak of slower growth, a new industry report shows.

The Institute for Supply Management has said its services index rose to 53.3 last month from 52.7 in July, beating the 51.0 median forecast in a Reuters poll of 71 economists. A reading above 50 indicates expansion in the sector.

Economists said the report was at odds with service sector readings beyond US borders, which showed growth slowing sharply last month in the eurozone, UK and China.

"The consensus-beating reading leaves the US economy in better shape than other major developed economies. A weighted all-sector PMI reading (covering both manufacturing and non-manufacturing) of 54.5 in the US compares with equivalent readings of just 50.7 in both the Eurozone and UK and 46.7 in Japan," said Markit chief economist Chris Williamson.

Other US data has also been disappointing, including a report last week showing the economy did not add any new jobs in August, leaving the jobless rate above nine per cent.

The ISM report suggests consumers have not stopped spending entirely. The new orders component rose to 52.8 from 51.7 in July, a mildly encouraging sign of consumer demand.

The report "defied expectations," said Theodore Littleton of IFR Economics. "The uptick may indicate that service industries did better later in the month, overcoming the early August misery seen in Friday's employment report."

But ING economist Rob Carnell said the index result did not change the outlook for the US.

"Despite covering a larger section of the economy than the manufacturing survey, the non-manufacturing sector tends to trail rather than drive the business survey.

"So although this is a spot of welcome good news amongst the otherwise dismal backdrop, it probably doesn’t change the notion that the US is skirting recession right now," he said.

The employment index in the ISM report slipped to 51.6 in August, its lowest since September 2010. It stood at 52.5 in July.