The performance of the U.S. service sector picked up again in June, with output, new business and employment all rising at the fastest rates since the survey began almost five years ago. Survey respondents suggested that business activity was buoyed by improving underlying economic conditions and greater confidence among clients, as well as a catch-up effect following weather related disruptions to workloads in the first quarter of 2014.

Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 61.0 in June (61.2 flash), up from 58.1 in May. The index has now picked up in three of the past four months, with the latest reading signalling the strongest rate of output growth since the survey began in October 2009. Moreover, the average reading during the second quarter of the year (58.0) was the strongest since Q1 2012.

At 61.0 in June (61.1 flash), up from 58.4 in May, the seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) rose for the second month running. The latest index reading signalled the fastest pace of expansion since this series began in late 2009 (exceeding the previous post recession high seen in February 2010). June data pointed to stronger rises in both manufacturing output and service sector business activity.

A continued rebound in service sector activity during June reflected another acceleration in new business growth from the 18-month low registered in March. Higher levels of client spending in turn led to some pressures on operating capacity, as highlighted by a rise in backlogs of work for the second consecutive month. That said, the latest rise in unfinished work was only moderate and the rate of backlog accumulation slowed since May.

Service sector payroll numbers increased again in June. The rate of job creation accelerated for the second month running and was the fastest since the survey began in October 2009. Companies that added to their staffing levels generally cited the launch of new projects, efforts to boost capacity and optimism about the outlook for the wider U.S. economy.

June data signalled that service providers remain highly upbeat about their prospects for output growth over the next 12 months, although the degree of positive sentiment slipped to its least marked since February. Survey respondents reporting an optimistic outlook for business activity mostly cited improving economic fundamentals.

Meanwhile, service sector input cost inflation accelerated for the third month running to its fastest since January. However, prices charged inflation was relatively subdued, and slipped to a nine month low in June.

The NMI® registered 56 percent in June, 0.3 percentage point lower than the May reading of 56.3 percent. This represents continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 57.5 percent, which is 4.6 percentage points lower than the May reading of 62.1 percent, reflecting growth for the 59th consecutive month at a slower rate.

The New Orders Index registered 61.2 percent, 0.7 percentage point higher than the reading of 60.5 percent registered in May. The Employment Index increased 2 percentage points to 54.4 percent from the May reading of 52.4 percent and indicates growth for the fourth consecutive month and at a faster rate. The Prices Index decreased 0.2 percentage point from the May reading of 61.4 percent to 61.2 percent, indicating prices increased at a slightly slower rate in June when compared to May. According to the NMI®, 14 non-manufacturing industries reported growth in June. Respondents’ comments vary by industry and company; however, the majority indicate that steady economic growth is continuing.

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