The US services sector unexpectedly gained momentum in August, with new orders strengthening and businesses paying higher prices for inputs, signs of potential inflationary pressures still high.
The Institute for Supply Management (ISM) announced last Wednesday that the non-manufacturing PMI Index rose to 54.5 last month, the highest reading since February and up from 52.7 in July. A reading above 50 indicates growth in the service industry, which accounts for more than two-thirds of the economy.
Economists had predicted that the non-manufacturing PMI would drop to 52.5, and no economist expected a reading higher than 53.9.
The Fed has raised the central bank's policy rate by 5.25 percentage points over the past year and a half to curb hyperinflation, and in recent months has welcomed signs that higher borrowing costs are starting to have an impact.
Inflation according to the Fed's preferred measure, the price index of personal expenditures (PCE), rose 3.3% in July from a year earlier, down from a peak of 7% last summer, based on data published last week.
Meanwhile, a Labor Department report last Friday showed average monthly job growth was about 150,000 over the past three months, down significantly from 238,000 in the three months to May.
Also on Friday, the ISM reported that the manufacturing PMI contracted in August for the 10th month in a row.
Those signs of cooling have helped bolster expectations that the Fed will leave policy rates steady at its meeting later this month, and may be done with rate hikes.
Fed policy officials see the services sector as key to reducing inflation to their target of 2%, and the ISM report on Wednesday did little to bolster the view that any slowdown in inflation is under way.
A gauge of new orders received by service businesses rose to 57.5 last month from 55.0 in July. A gauge of prices paid by service businesses for inputs rose to 58.9 in August from 56.8 in July.
