Despite slowdown, US services sector beats forecast

The US services sector's growth slowed down in early August but surpassed the forecast. According to the financial firm Markit Economics, the flash US Services Purchasing Managers' Index (PMI) recorded 55.2 points in August from 55.7 points in July.

However, it surpassed the forecast of 55.1 points. With the slower growth rate, the PMI is hovering a little above the five-month low level.

The softening of new business growth was the major reason behind the slow growth in the services sector, observes Markit Economics. The subindex that indicates the movements of news business growth rate in the services sector is reached to its lowest since January this year.

The sub index of new business dropped to 54.8 points level from 57.4 points in July. The July level was the highest since April. The Flash Composite PMI, a weighted index of Markit that covers manufacturing and services sectors, also dropped to 55 points in August. This is a little lower than that in July, says Markit.

However, the headline gauge is continuing in expansion mode above 50 points level for consecutively 35th month. If one considers all the factors, then the situation is not bad, commented an analyst at Markit.

Tim Moore, senior economist at Markit, said: "August data signals that slowdown comes hot on the heels of a 22-month low recorded by the latest flash manufacturing PMI surve4y. Moreover, this came out much earlier than escalating worries about China's growth outlook gathered on the horizon."

The drop in PMI indicates that renewed slowdown in the US services segment. Adding to this, the new business volume of service providers grew at very slow pace throughout this year.

The slowdown in the US services sector had already indicated the turbulent situation in the economy much before the eruption of global markets crash and Chinese economy slowdown followed by its currency crisis, according to analysis done by Markit.

After recording sustainable employment generation for the past five years, the job creation in the services sector also slowed down in early August.

The Markit study also alarms the possible situation that it could lead to a further slowdown in input cost inflation. The continuous drop in oil prices is alleviating pressure on cost burden. The average charges in the services sector remain unchanged in August. This has stopped the rising output prices for the past 25 months.

In July, the US services sector PMI recorded a modest gain signaling the improvement in new businesses. The PMI for the services sector marginally moved up to 55.7 points in July from 54.8 in June.

The PMI data in July indicated a good start to the third quarter, but the Chinese factors coupled with ailing Greece economy dampened the market sentiment during the quarter.