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Service-sector job creation strongest since May 2015, despite output growth deceleration

September 21, 2018

The rate of job creation in the service economy during September was the strongest since May 2015, according to a report by IHS Markit, a London-based provider of market analytics. Meanwhile, manufacturing jobs numbers expanded, but at the weakest pace in 13 months.

Even with the job creation, overall US private-sector output growth moderated in September, according to the report. A deceleration in the service economy more than offset an accelerated rise in manufacturing output. Anecdotal evidence suggests some of the slowdown was the result of company shutdowns on the East Coast ahead of hurricane Florence.

IHS Markit’s “Flash US Composite PMI Output Index” pointed to the weakest upturn in business activity since April 2017. It was at a reading of 53.4 in September.

“With storms hitting the East Coast, it was no surprise to see some disappointing survey data in September, with the flash PMI indicating that the pace of economic growth slipped to its lowest for almost one-and-a-half years,” said Chris Williamson, chief business economist at IHS Markit. “However, business activity remained encouragingly resilient during the month, commensurate with third-quarter GDP growing at an annualized rate approaching 3%.”

Williamson also noted growth could pick back up in the fourth quarter, and the upturn in hiring was encouraging. The survey’s findings are indicative of nonfarm payroll growth topping 200,000 in September.

The impact of tariffs is also being seen with rising costs that are passing through to selling prices.

“The escalation of trade wars, and the accompanying rise in prices, contributed to a darkening of the outlook, with business expectations for the year ahead dropping sharply during the month,” Williamson said. “While business activity may rebound after the storms, the drop in optimism suggests the longer-term outlook has deteriorated, at least in the sense that growth may have peaked.”