US Services Survey Soars In September, Prices Paid Explode Higher

After weakness in the Manufacturing surveys, this morning’s Services sector surveys were yet another hope-filled data point to support the soft-landing narrative.

• S&P Global’s US Services PMI was relatively steady (in expansion) at 55.2 – near the highest since March 2022.

• ISM Services PMI surged to 54.9 (well above the 51.7 print expected) – highest since Feb 2023 (and catching up to S&P Global’s survey)

Source: Bloomberg

Strong growth, but soaring prices… not exactly 50-bps-rate-cut time!!

ISM Services saw the biggest beat since January 2023…

…an 8 sigma beat!!

Just one quick thing before we delve into the details, the spread between Manufacturing and Services PMI is at its widest since 2015. In both 2015 and 2019, the slump in manufacturing led a more dramatic slump in Services by a few months…

„The upturn has also become increasingly uneven, with growth wholly dependent on the service sector as manufacturing has slipped deeper into a decline in September. This factory malaise is showing some signs of spilling over to the service sector, subduing growth in particular for industrial services.

As Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, notes, growth remains very strong:

“US service sector businesses reported a strong end to the third quarter, with output continuing to grow at one of the fastest rates seen over the past two-and-a-half years. After GDP rose at a 3.0% rate in the second quarter, a similar strong performance looks likely in the three months to September.

„Encouragingly, inflows of new business in the service sector grew at a rate only marginally shy of August’s 27-month high. Lower interest rates have already been reported by survey contributors as having buoyed demand, notably for financial services which, alongside healthcare, remains an especially strong performing sector.

However, Williamson notes that „companies have become increasingly concerned about the outlook, however, with business confidence slumping in September amid uncertainty caused by the upcoming election as well as perceptions of rising recession risks.”

„It therefore remains to be seen how the Presidential Election will affect growth, and the extent to which lower interest rates might help revive struggling sectors such as industrial goods and services. Clearly there are both upside and downside risks to growth.

Meanwhile, Williamson concludes that „the inflation signals from the survey point to reviving price pressures, principally linked to stubbornly elevated wage growth, which could temper the Fed’s enthusiasm for further aggressive rate cutting.”

ISM Prices Paid spikes to its highest since Feb 2023…

But hey, someone’s got to get Kamala elected eh!?