MNI INTERVIEW: US Service Prices Have Peaked, ISM Chief Says

U.S. service-sector prices have peaked and will likely continue to ease as fuel costs fall, setting the sector up for continued moderate growth, Institute for Supply Management survey chief Anthony Nieves told MNI Tuesday.

"As fuel goes and the price of gas, especially with overland trucking, it does affect overall total cost for the sector," he said.

Prices in the August survey of service sector purchasing managers eased for the fourth straight month, down 0.8 points from July to 71.5. The survey showed 49% of service firms reporting higher prices in August, down from 72% in May, while 8% registered lower prices. Nieves expects the ISM prices index to fall into the 60s in coming months.

Service providers continue to see supply pressures ease, Nieves said. "Overall, it looks like this steady, incremental growth that we've been seeing is being maintained," he said.

The view of steady growth and slowing inflation suggests the risks of stubborn price gains and a potential recession outlined by some Fed officials may not come to pass. That could mean less risk of either continued aggressive rate hikes or a rate cut next year to keep growth on track. (See: MNI INTERVIEW: ISM Chief Sees Clear Price Stability Trend)

HARD TO FIND WORKERS

The ISM services survey strengthened further in August against expectations for an outright decline, with the headline composite at 56.9 in August from 56.7 in July. A reading below 50 would indicate a contraction.

Demand has picked up with the new orders sub-index jumping 1.9pps to 61.8, but the ISM chair indicated he's expecting some moderation in coming months. "They're seeing some capital expenditures coming into the mix and overall we are seeing capacity improving but demand could wane," he said.

There are also few if any signs that labor retention is improving, Nieves said, shrugging off a 1.1 pp increase in the employment sub-index to 50.2 in August.

"As people fear a potential recession, workers tend to be more conservative and shift less from employer to employer," he said. "Yet we're still seeing in the low-skilled, customer-facing positions that the biggest challenges are to fill those voids."

"We're starting to see wage pressures cool just a little bit, but still demand for workers in the services sector is strong," he added.