Tech Leads Strong Growth Signals From US Services Sector Surveys; But Prices Are Soaring

After last weeks impressive moves in Manufacturing survey data (though burdened with the baggage of a surge in Prices Paid), all eyes are on the Services side of the US economy with mixed results expected (S&P up, ISM small down).

• S&P Global US Services September slightly better than expected (58.8 vs 58.7 exp/flash vs 56.5 prior) – strongest in five years

• ISM US Services slightly worse than expected (54.9 vs 55.0 exp vs 55.4 prior)

Quite a divergence…

“September has seen US business growth surge to its highest for over five years,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, “with rising demand and improved optimism encouraging firms to take on workers at a pace not seen for over four years.

Combined with the encouragingly solid manufacturing PMI, the strong service sector expansion points to economic growth of around 4% in the third quarter and 5% in September alone, the latter hinting at accelerating momentum into the fourth quarter.

This also leaves the US economy by far the strongest in the world…

New orders and backlogs of work are rising at increased rates and growth expectations have recovered to a one-year high, adding to the sense of an economy picking up further pace in the near term.

For the first time in 10 months, output trended higher across all five broad sectors covered by the survey as transport & storage activity returned to growth. By far the sharpest expansion was seen in the information & communication sector, however.

“Tech companies are reporting by far the strongest growth but the rising tide is now lifting all boats as far as the major sectors are concerned, with accelerating growth also reported for consumer-facing businesses as well as industrials and healthcare, alongside sustained solid growth in financial services.”

However, concerns that the economy is running too hot will be fueled by the survey’s price gauges, which point to accelerating inflation.

Measured across goods and services, firms’ input costs are now rising at the fastest rate for nearly four years.

“While these increased costs in part reflect higher fuel prices, the worry is that selling price growth has also moved higher again to signal sustained stubbornly high inflation, well above the Fed’s 2% target.”

Stronger growth and sticky/soaring inflation are going to counter the dovish message from last week’s FedSpeak and weaker payrolls.