Good News on Bounce Back in Services: Accelerating New Business Growth

By at 5 October, 2020, 9:46 am

by Raymond J. Keating-

The two latest takes on the services sector of the U.S. economy released on October 5 point to welcome news.

First, the IHS Markit U.S. Services PMI report noted optimism thanks to new business formations. It was noted: “September PMI data signaled a solid upturn in U.S. service sector business activity, albeit one that was slightly slower than August’s recent high. The expansion was largely driven by a faster rise in new business.”

On the business formation front, it was stated: “The rate of new business growth accelerated in September, as the respective seasonally adjusted index moved further away from April’s nadir. The strong expansion was the sharpest since March 2019, as total new sales were boosted by strengthening customer demand.”

Considering the daunting trouble faced by entrepreneurs, this is a noteworthy finding, and if it holds up, important for the overall well-being of the U.S. economy and recovery.

It also was pointed out, “Quicker growth in new sales was supported by another strong increase in foreign client demand. As a result, employment growth remained historically marked, with firms mentioning strains on capacity.”

At the same time, though, the challenges of this pandemic economy were not ignored, as it was noted that business confidence “sank to a four-month low.”

As for the private sector overall, it was noted in the IHS Markit report: “The upturn in U.S. private sector output remained solid despite a slight slowdown in service sector growth.”

Chris Williamson, Chief Business Economist at IHS Markit, said, “Sentiment on prospects for the coming year darkened significantly, however, linked to growing worries about virus numbers, uncertainty regarding the presidential election and fears that the economy is susceptible to weakening unless more support measures are put in place soon.”

As for the Institute for Supply Management’s services report, it was noted, “Economic activity in the services sector grew in September for the fourth month in a row,” with the September Services PMI coming in at 57.8 percent, which was up from the August reading of 56.9 percent.

It also was pointed out, “This reading represents growth in the services sector for the fourth straight month and the 126th time in the last 128 months, except for April’s and May’s contraction.”

A measure above 50 generally signals expansion, while below 50 points to contraction. Also, ISM reports that a measure of 48.5 percent in its Services PMI indicates growth in the overall economy.

As for the industry breakdown, 16 out of 17 service sectors reported expansion in September.

Regarding jobs, it was noted in the ISM report: “Employment activity in the services sector grew in September after six months of contraction, a period preceded by 72 consecutive months of growth. ISM®‘s Services Employment Index registered 51.8 percent, up 3.9 percentage points from the August reading of 47.9 percent…”

Breaking the employment picture by industry: “The nine industries reporting an increase in employment in September — listed in order — are: Arts, Entertainment & Recreation; Transportation & Warehousing; Utilities; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Health Care & Social Assistance; Management of Companies & Support Services; Public Administration; and Construction.

“The six industries that reported a reduction in employment in September — listed in order — are: Mining; Educational Services; Information; Professional, Scientific & Technical Services; Other Services; and Finance & Insurance.”

While the climb ahead remains steep, there are clear signs of hope and recovery in these service sector measures.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


News and Media Releases