WASHINGTON (Reuters) -U.S. services sector activity picked up in August, but employment remained subdued as labor market conditions ease.
The Institute for Supply Management (ISM) said on Thursday its nonmanufacturing purchasing managers index (PMI) increased to 52.0 last month from 50.1 in July. Economists polled by Reuters had forecast the services PMI rising to 51.0.
A PMI reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy.
Economists have blamed President Donald Trump’s punitive tariffs for eroding a once-resilient labor market.
The import duties, which have boosted the nation’s average tariff rate to a level not seen since 1934, have stoked fears of inflation, prompting the Federal Reserve to pause its interest rate cutting cycle.
The ISM’s measure of services employment was little changed at 46.5 in August, making the third straight month of contraction. Though this measure and the ISM’s manufacturing employment gauge have not been good predictors of nonfarm payrolls in the government’s closely watched employment report, they aligned with other labor market indicators that have suggested a considerable loss of momentum.
The government reported on Wednesday that there were more unemployed people than open positions in July for the first time since the COVID-19 pandemic.
A Reuters survey of economists expects the employment report on Friday will likely show nonfarm payrolls increased by 75,000 jobs in August after rising by 73,000 in July.
Employment gains averaged 35,000 jobs per month over the last three months compared to 123,000 during the same period in 2024, the government reported in August. The unemployment rate is forecast to climb to 4.3% from 4.2% in July.
Fed Chair Jerome Powell last month signaled a possible rate cut at the U.S. central bank’s September 16-17 policy meeting, acknowledging the rising labor market risks, but also added that inflation remained a threat. The Fed has kept its benchmark overnight interest rate in the 4.25%-4.50% range since December.
The ISM survey’s new orders measure rose to 56.0 last month from 50.3 in July. With demand picking up, inflation remained elevated. Its measure of prices paid dipped to 69.2 from 69.9 in July, which was the highest level since October 2022. Services inflation has warmed up in recent months, raising concerns that a broad increase in inflation was imminent.
(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama )
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