U.S. private sector business activity continues to grow in August but at slower pace - IHS Markit's survey

Preliminary data released by IHS Markit on Monday revealed that U.S. private sector business activity continued to grow in early August, albeit at a softer pace than in July.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) came in at 61.2 in August, down from 63.4 in July. The latest reading pointed to the slowest expansion in factory activity since April s, but substantial nonetheless. Economists had expected the reading to decrease to 62.8. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. Material shortages and pressure on capacity led to a slowdown in output growth. The rate of increase in production was the weakest since March. Challenges fulfilling new orders and an unprecedented deterioration in vendor performance led to the second-steepest advance in backlogs of work in the over 14-year series history. In addition, difficulties retaining employees and finding suitable candidates led to the slowest growth in workforce numbers in 2021-to-date.

The Markit flash services purchasing manager's index (PMI) dropped to 55.2 in August, down from 59.9 in the previous month. This was the lowest reading since December 2020. Economists had expected the reading to slip to 59.5. The slowdown in activity growth was often linked to labour shortages, the spread of the Delta variant and some instances of supply chain disruption. The rate of expansion of new business decelerated to the softest in a year. Meanwhile, the rate of job creation was the slowest since February amid a high turnover in staff. On the price front, input costs rose significantly and at one of the quickest paces on record amid solid hikes in supplier prices and greater wage bills. Subsequently, service providers increased their selling prices at a sharper rate.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 55.4 in August, down noticeably from 59.9 in July. This represented an eight-month low.

“The expansion slowed sharply again in August as the spread of the Delta variant led to a weakening of demand growth, especially for consumer-facing services, and further frustrated firms’ efforts to meet existing sales,” noted Chris Williamson, Chief Business Economist at HIS Markit. ““Not only have supply chain delays hit a new survey record high, but the August survey saw increasing frustrations in relation to hiring. Jobs growth waned to the lowest since July of last year as companies either failed to find suitable staff or existing workers switched jobs.”