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Markit: US service sector activity jumps in March

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Markit:  US service sector activity jumps in March

Composite PMI highest since September of 2104.

The widely-watch Markit Flash US Services PMI Business Activity Index released Thursday signaled a robust and accelerated expansion of service sector output.

The latest index reading was well above the survey average (55.8) and pointed to the sharpest increase in business activity since September 2014. Survey respondents noted that improving economic conditions, stronger consumer confidence and the launch of new products all helped to boost activity levels in March.

March data indicated a strong and accelerated expansion of incoming new work across the US service sector. The latest increase in new business was the fastest for six months and stronger than the average for 2014 as a whole. Greater workloads contributed to a solid rise in unfinished business at service providers in March, with the rate of backlog accumulation the steepest since last November.

Service sector payroll numbers increased again in March, which extended the current period of job creation to just over five years. Moreover, the rate of employment growth picked up for the third month running to its fastest since June 2014. Anecdotal evidence linked staff recruitment to rising business activity and sustained improvements in client demand.

Despite stronger output and new business growth during March, the latest survey pointed to a moderation in service providers’ optimism towards the business outlook. The proportion of service sector companies expecting a rise in business activity over the next 12 months was the lowest since June 2012. Meanwhile, input price inflation remained modest in March, helped by subdued fuel and energy costs. That said, the overall rate of inflation picked up slightly since February and reached a three-month high. Average prices charged by service providers increased for the twenty-first month running, but the latest rise was only marginal.

Composite PMI rises

The Markit Flash US Composite PMI Output Index, based on original survey data from the Markit U.S. Services PMI and the Markit U.S. Manufacturing PMI, posted 58.5 in March, up from 57.2 in February and the highest reading since September 2014. Sharper US private sector growth reflected an accelerated rise in both services and manufacturing output. The latest survey also pointed to sustained payroll growth across the private sector, with the rate of expansion the steepest for four months.

Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said “The US economy is showing signs of regaining momentum after the slowdown seen at the turn of the year. The flash PMI surveys are registering faster growth of both service sector and factory activity at the end of the first quarter, as well as ongoing strong hiring.

“While the surveys signal that economic growth will have slowed in the first quarter from an already modest 2.2% pace seen in the final quarter of last year, the upturn in the surveys in March provides a clear advance indication that stronger economic growth will return in the second quarter.

“While weak economic data for the first quarter will keep Fed rate hikes at bay in coming months, ruling out a June hike, the upturn in second quarter GDP signaled by the recent PMI data ups the odds of interest rates starting to rise at the September FOMC meeting.”

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