(Kitco News) – The U.S. service sector strengthened last month with business activity improving and price pressures easing, though employment declined further and tariff worries persist, according to the latest data from the Institute for Supply Management (ISM).
The ISM announced on Thursday morning that its Services Purchasing Managers Index rose to 52 in August, up from July’s reading of 50.1. The data was better than expected, as economists were looking for a reading of 50.5.
“August’s Services PMI level showed greater strength, driven by faster expansion rates for the Business Activity and New Orders indexes,” said Steve Miller, chair of the Institute for Supply Management Services Business Survey Committee. “Offsetting these positive indicators, however, are continued contraction in the Employment Index, a 16-year low for the Backlog of Orders Index, and the Prices Index remaining near 70 percent.”
Readings above 50 in such diffusion indexes signify economic growth and vice versa. The farther an indicator is above or below 50, the greater or smaller the rate of change.
Gold prices pulled back following the 10 am EDT release. Spot gold last traded at $3,539.85 per ounce for a loss of 0.54% on the daily chart.
The components of the report showed the services sector improving in most areas. The Business Activity Index rose to 55 compared to the 52.6 percent recorded in July, while the New Orders Index delivered a reading of 56 percent, up 5.7 percent from July’s 50.3.
At the same time, the Employment Index remained in contractionary territory for the third month in a row and the fifth time in the last six months with a reading of 46.5 after the 46.4 recorded in July, and the Backlog of Orders Index contracted for the sixth month in a row, registering 40.4 percent in August, a decline of 3.9 percentage points from July’s of 44.3 percent and the lowest reading since May 2009.
“The Supplier Deliveries Index registered 50.3 percent, 0.7 percentage point lower than the 51 percent recorded in July and matching the June reading” Miller said. “The Prices Index registered 69.2 percent in August, a 0.7-percentage point decrease from July’s reading of 69.9 percent. The index has exceeded 60 percent for nine straight months, its longest such streak since 30 consecutive readings above 60 percent from October 2020 to March 2023.”
The Inventories Index came in at 53.2 percent, an increase of 1.4 percentage points from July’s 51.8 percent.
“Twelve industries reported growth in August, one more than in July,” Miller noted. “The Services PMI has expanded in 11 of the last 12 months, but the August reading of 52 percent is 0.4 percentage point below the 12-month average reading of 52.4 percent.”
“Commentary once again was led by respondents’ increasing citations of tariff impacts, with some indication that business activity and imports are being driven by an attempt to get ahead of additional price increases while preparing for the holiday peak season.”
