US service sector activity remained steady in August, but job growth slowed, in line with a softening labor market.
The Institute for Supply Management (ISM) reported on Thursday that the purchasing managers' index (PMI) of the non-manufacturing sector was virtually unchanged at 51.5 last month compared to 51.4 in July.
A PMI reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy. The ISM sees a reading above 49 in the long term as a general indicator of overall economic expansion.
Economists polled by Reuters had forecast the services PMI to fall to 51.1. The report, coupled with strong consumer spending in July, showed the economy continued to expand, albeit at a more modest pace than last year.
A spike in the unemployment rate to a near three-year high of 4.3% in July stoked fears of a recession and put a 50 basis point cut in interest rates a possibility this month as the Federal Reserve is expected to begin its easing cycle.
A measure of new orders in the ISM survey rose to 53.0 from 52.4 in July. A measure of employment in the services sector fell to 50.2 from 51.1 in July.
The labor market is slowing, but shows no signs of a major downturn. Government data on Wednesday showed there were 1.07 job openings for every unemployed person in July, down from 1.16 in June.
Job growth is expected to pick up in August, according to a Reuters poll, which forecast nonfarm payrolls rose by 160,000 last month after rising 114,000 in July. The unemployment rate is expected to drop to 4.2%.
Inflation in the services sector was almost unchanged last month. The ISM measure of prices paid for service inputs rose slightly to 57.3 from 57.0 in July. Price pressures in the economy are easing as higher borrowing costs suppress demand.
