US Services Sector Growth Mixed

Date: September 12, 2016

Services Sector Revenue Rose In Q2, But August Activity Slowed

As small business owners continue to closely watch economic data for signals that the US may finally be recovering from the recession and experiencing sustainable growth, the services sector is providing mixed signals as to the overall health of the US economy. In a positive indicator, the latest Commerce Department data shows that during Q2, US services sector revenue climbed 4.3% compared with Q2 2015. The Wall Street Journal noted that annual growth in the first quarter this year was 3.5 percent and fourth quarter last year was 2.2%. The revenue gains are characterized as the strongest year-over-year gains since Q4 2014. The Journal said the growth signals continued modest expansion and was driven by consumer spending at doctors’ offices, hotels, and other businesses.

Despite this positive Q2 services sector revenue growth, the latest Institute of Supply Management data indicates that in August, activity in the US services sector “slowed to a 6-1/2-year low” in August as ISM’s non-manufacturing index fell 4.1 percentage points to 51.4 “amid sharp drops in production and orders,” which Reuters said points “to slowing economic growth that further diminished prospects for an interest rate hike from the Federal Reserve this month.” The drop from July “was the largest monthly fall since the 2008 financial crisis, with the ISM saying a majority of companies had noted a slowing in their level of business.”

What This Means For Small Businesses

The mixed signals presented by the latest data on the US services sector show the overall health of the US economy continues to be unclear. This uncertainty weighs heavily on small businesses trying to plan future growth. As NFIB Chief Economist Bill Dunkelberg said in the latest Small Business Economic Trends report, “Uncertainty is high, expectations for better business conditions are low, and future business investments look weak. Our data indicates that there is little hope for a surge in the small business sector anytime soon.”

Additional Reading

The AP also reported on the latest ISM services sector data.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

Related Content: Small Business News | Economy | National

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