Economic outlook: Services grow for first time in 2020, IHS Markit says

  • IHS Markit’s Composite Purchasing Managers’ Output Index gained to 54.7 in August from 50.3, marking an 18-month high amid steady economic recovery.
  • The firm’s services gauge improved to 54.8 from 50. The reading is the first this year to show the sector in growth territory.
  • Both manufacturers and service providers benefited from increased consumer demand as lockdowns were lifted, IHS said.
  • The service sector’s return to growth “was welcome news following five months of declines,” Siân Jones, an economist at IHS, said in a statement.
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A top economic indicator shows the US recovery continuing through August and the services sector expanding for the first time this year.

IHS Markit’s Composite Purchasing Managers’ Output Index jumped to 54.7 this month from 50.3, according to preliminary data released Friday. The reading marks an 18-month high as both manufacturers and services providers continued to rebound from their first-quarter lows.

Any reading above 50 indicates sector expansion, while one below the threshold signals contraction.

The firm’s Services Business Activity Index climbed into growth territory for the first time in 2020, gaining to 54.8 from 50. The gauge’s rally was largely fueled by strengthened demand and increased marketing activity, according to IHS. Sales growth also led to healthy hiring activity halfway through the third quarter. The rate of employment growth reached its steepest since February 2019, the firm added.

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“The renewed increase in sales among service sector firms was welcome news following five months of declines,” Siân Jones, an economist at IHS, said in a statement.

IHS’s manufacturing PMI gained to 53.9 through the month, up from 50.9 on increased output and new order growth. Business confidence among manufacturers also gained on optimism for reopenings.

The preliminary readings give investors new reasons to bet on a steady recovery. Consumer sentiment and spending data slowed their uptrend earlier in the summer as a resurgence of COVID-19 cases slammed reopening efforts. Infection rates have since moderated and given way to more positive data in July and August.

Still, many industries are wary of whether the rebound can continue at its current pace. Positive sentiment gauges fell slightly from July’s highs. Cost burdens increased as well as raw material prices swung higher.

“Although manufacturers increased their selling prices at a faster rate to help compensate, service sector firms noted that competitive pressures and discounting to attract customers had stymied their overall pricing power,” Jones said.

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