The Purchasing Managers’ Index (PMI) offers an early look at business activity, employment and prices
American service businesses became busier in August. The S&P Global Services PMI rose from 54.6 in July to 56.8—its strongest reading in nearly two years. Any number above 50 indicates that activity is expanding.
The PMI is based on a monthly survey asking businesses whether activity, new orders, employment and prices increased or decreased. It gives us an early preview of the economy, rather than a final count of sales or jobs.
Where Could the Growth Be Happening?
| Service area | What that could look like |
|---|---|
| Consumer services | Summer travel, hotels, restaurants, recreation and personal services |
| Transportation | Airlines, deliveries, trucking and moving goods to stores |
| Technology | Software, cloud services, cybersecurity, AI and workplace computer upgrades |
| Banking, insurance and investments | Processing payments and loans, writing insurance policies and managing investments |
| Business services | Accounting, legal work, consulting, marketing and staffing |
The report specifically points to consumer activity and financial businesses as important sources of growth. Financial activity can also spread into other parts of the economy. A homeowner borrowing money to remodel a kitchen creates business for the lender, contractor, delivery company and stores selling cabinets and appliances.
However, the PMI does not tell us precisely which individual industries grew the most. The examples in the chart illustrate where service activity could be occurring—not confirmed growth rates for each category.
More Hours Before More Hiring
Service companies reported stronger hiring in August, but one good month does not necessarily mean a wave of new jobs.
The first result may be more hours and steadier schedules for current employees. Businesses may also fill existing vacancies before creating new positions. Even if demand remains strong, some employers may decide their present workforce can handle the additional work.
We will need to watch the employment reports over the next several months to see whether increased business eventually produces meaningful job growth.
The Price Concern
Businesses are still dealing with elevated energy, transportation and supply costs. Companies may absorb some of those expenses, but others could pass them along through higher prices for services and goods delivered to stores.
Closing Thoughts
This was an encouraging report because service businesses have more work coming through the door. That could help protect existing jobs and give some employees additional hours.
Whether it eventually leads to more coworkers remains uncertain. For now, the PMI shows an economy that is still moving forward—but one in which stronger demand could also keep prices and borrowing costs elevated.