The Markit Flash U.S. Services PMI™ shows that service sector activity expanded at the fastest pace since November 2015.

Based on the expanded activity, Markit estimates 4th quarter GDP around 2.0%.

Key Findings

  • Business activity increases at a robust and accelerated pace in October
  • New order volumes rise at quickest rate seen so far in 2016
  • Service providers report strongest business optimism since August 2015

Service Sector Activity

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October data pointed to a marked improvement in growth momentum across the U.S. service sector. Business activity and incoming new work both expanded at the fastest pace for 11 months. The latest survey also revealed an upturn in confidence towards the year-ahead business outlook, with service providers reporting the strongest optimism since August 2015.

Input cost pressures meanwhile picked up from the 19-month low recorded in September, which contributed to a slightly faster rise in prices charged by service sector companies during October.

New order growth also accelerated for the first time in three months and was the fastest since November 2015. Although only modest, the rate of backlog accumulation was the joint-fastest recorded since April 2015.

Despite stronger business activity growth, service providers indicated that cautious staff hiring patterns persisted in October. Measured overall, job creation picked up only slightly from the three-and-a-half year low recorded in September. While some firms sought to boost their payroll numbers in response to rising workloads, there were also reports that efforts to reduce costs had led to the non-replacement of voluntary leavers.

Service sector companies reported a solid increase in their average cost burdens during October. The rate of input price inflation was the fastest since May, but still weaker than seen on average since the survey began in late-2009. At the same time, service providers recorded a moderate rise in their average prices charged, with the pace of inflation edging up to its strongest since November 2015.

Comments from Markit Senior Economist Tim Moore

  • “The latest survey data reveal a decisive shift in growth momentum across the U.S. service sector, which mirrors the more robust manufacturing performance seen during October. Taken together, the ‘flash’ PMIs suggest that the economy is growing at an annualized rate of around 2% at the start of the fourth quarter.”
  • “Service providers experienced the fastest upturn in new business volumes since late-2015, which survey respondents linked to improving domestic economic conditions and signs of greater business investment in particular. That said, job creation remained relatively subdued in October, with firms reporting cautious hiring plans and efforts to alleviate pressures on margins.”
  • “October’s survey findings contained positive signs for near-term growth prospects, with service sector companies the most upbeat about the business outlook since August 2015. Moreover, the month-to-month rise in this index was one of the largest seen over the past two years.”

Mish Comments

Today’s report placed Markit’s initial 4th quarter GDP estimate at 2.0%. That’s double its final 3rd quarter estimate of 1.0%.

Input prices jumped, but from a 19th month September low.

Optimism is up, but future expectations are at best useless except as a contrary indicator at major lows following recessions.

Still, this was a good report. Is it a one month flash in the pan or not?

Mike “Mish” Shedlock