The U.S. services industry picked up again in August for the second consecutive month due to stronger order growth and employment while supply bottlenecks and price pressures eased, reinforcing the belief that the economy was not in a recession despite output sinking in the first half of the year.
The Institute for Supply Management said its non-manufacturing PMI was up to 56.9 last month from 56.7 in July, the second monthly increase after three months of declines.
Economists polled by Reuters had predicted that the PMI would drop to 54.9. A measure above 50 indicates an expansion in the services sector, which comprises more than two-thirds of U.S. economic activity.
The growth in services followed the ISM's manufacturing survey last month, showing U.S. factory activity grew steadily last month, bucking a trend in other major economies and showing that the economy is not in recession despite gross domestic product contracting in the first half of the year.
The trade deficit and inventories tied to gummed up global supply chains have sparked a decline in output, which has been cited as a result of the swings in inventories and supply chains. The job gains have remained strong, with U.S. employers hiring more workers than expected last month.
The shift in spending from goods is supported by the services sector. The ISM's measure of new orders received by services businesses rose to 61.8 from 59.9 in July.
Its services industry employment gauge rose to 50.2 from 49.1 in July. The government reported last week that the U.S. job openings increased unexpectedly in July, to 11.2 million, and an ongoing tight labor market is keeping pressure on the Federal Reserve to raise interest rates to slow demand as it struggles to bring down too high inflation.
There was a drop in supplier deliveries to 54.5 from 58.3 in July, helping to dampen the pace of increase in services inflation, according to the survey. The lowest reading since January 2021 was reached at 71.5, the lowest reading since January 2021, from 72.3 in July.