Service-sector activity in the US just improved at the sharpest rate in nearly a year, according to Markit Economics’ preliminary report for October.
The flash services purchasing managers’ index released Wednesday rose to 54.8 from 52.3 last month.
Economists had forecast a reading of 52.5. When the PMI is above 50, it shows that the sector is still in expansion, not contraction.
“The latest survey data reveal a decisive shift in growth momentum across the US service sector, which mirrors the more robust manufacturing performance seen during October,” Tim Moore, a senior economist at IHS Markit, said in the report.
“Taken together, the ‘flash’ PMIs suggest that the economy is growing at an annualized rate of around 2% at the start of the fourth quarter,” he added. The service sector is where two-thirds of all economic activity happens in the US, and it creates most of America’s jobs.
Markit said service providers were the most optimistic about business conditions since August 2015, as their clients became more willing to spend. Incoming new work increased at the fastest pace in 11 months.
But they were still unwilling to go on hiring sprees, with job creation picking just slightly from the 3-1/2-year low recorded in September. There was concern that bringing more people onto their payrolls would hurt profit margins.
Based on a survey of service-sector managers, data for the report was compiled October 12-25 and reflected 85 to 90% of Markit’s survey results. A more complete report will be released in November.