US private sector growth hits 27-month high in August, manufacturing lags

Activity in the US private sector picked up more than expected in August, hitting a 27-month high, but the manufacturing sector unexpectedly deteriorated, according to data released on Wednesday.

IHS Markit's flash services business activity index rose to 56.9 from 54.7 in July, beating expectations for a reading of 54.9. The survey found that strong economic conditions and an improvement in client demand drove the latest upturn in activity. The latter was highlighted by a sharp and accelerated rise in new business received by services companies, with the rate of new order growth reaching a 25-month high in August.

However, the manufacturing index fell to 52.5 from 53.3 the month before, falling short of expectations for an unchanged reading.

The composite index - which measures activity in both sectors - printed at a 27-month high of 56.0 compared to 54.6 in July.

Rob Dobson, director at IHS Markit, said: "The US economic growth story remained a tale of two sectors in August. The overall rate of expansion accelerated to a 27-month record, driven higher by strong and improved growth of business activity in the vast services economy. In contrast, the performance of manufacturing remained sluggish in comparison, with production volumes rising to the weakest extent in over a year.

"Nonetheless, the acceleration signalled for the economy as a whole suggests that GDP growth is still gaining momentum during the third quarter. With new order inflows also strengthening and job creation equalling its best pace in the year-to-date, economic growth should remain on course to outperform relative to the second quarter."

Anthony Kurukgy, senior sales trader at Foenix Partners, said: "Whilst the US growth story remained a tale of two sectors for August, the recent GDP print suggests that the US economy is gaining momentum for the third quarter of 2017, helped by an immense labour force and job creation equalling its best pace in the year to-date, economic growth should remain on course to outperform relative to Q2."