Although the retail industry slipped a bit in July, economic activity in the services sector expanded, according to the latest Institute for Supply Management Report On Business. The Purchasing Managers Index is at 51.4%, which represents sector expansion for the 47th time in 50 months.
Steve Miller, chair of the ISM Services Business Survey Committee, noted that the services registered 51.4%, 2.6 percentage points higher than June’s 48.8%. A 50% reading is the dividing line between expansion and contraction.
“The reading in July marked the fifth time the composite index has been in expansion territory in 2024,” Miller pointed out. “Before April, the services sector grew for 15 straight months following a Services PMI reading of 49% in December 2022. The last contraction before that was in May 2020, 45.4%. The Business Activity Index registered 54.5% in July, which is 4.9 percentage points higher than the 49.6 % recorded in June and a return to expansion after one month of contraction. The New Orders Index expanded to 52.4% in July, 5.1 percentage points higher than June’s figure of 47.3%. However, the index’s current reading is its fourth-lowest since early in the pandemic. The Employment Index expanded for just the second time in 2024. The reading of 51.1% is a five-percentage point increase compared to the 46.1% recorded in June.”
Miller added that PMI’s Supplier Deliveries category “registered 47.6%, 4.6 percentage points lower than the 52.2% recorded in June. The index returned to contraction territory, indicating faster supplier delivery performance, in July after two months in slower territory.”
Supplier Deliveries is the only Report On Business listing that is inversed, as a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand grows.
“The Prices Index registered 57% in July, a 0.7-percentage point increase from June’s reading of 56.3%,” Miller said. “The Inventories Index contracted for the second consecutive month in July, registering 49.8%, an increase of 6.9 percentage points from June’s figure of 42.9%. The Inventory Sentiment Index, 63.2%, down 0.9 percentage points from June’s reading of 64.1%, expanded for the 15th consecutive month. The Backlog of Orders Index returned to expansion territory for the fifth time in 2024, registering 50.6% in July, a 6.6-percentage point increase compared to the June reading of 44%”
Miller maintained that the July PMI gain “is a result of an average increase of five percentage points for the Business Activity, New Orders and Employment indexes, offset by the 4.6-point drop in the Supplier Deliveries Index. The last time Supplier Deliveries was in contraction territory while the other three indexes registered expansion was in November 2023. Survey respondents again reported that increased costs are impacting their businesses, with generally positive commentary on business activity being flat or expanding gradually. Comments continued to express a wait-and-see attitude regarding the upcoming presidential election, with one respondent expressing concern over potential increases in tariffs. Many panelists noted a return to more stable supply chain performance, albeit with higher costs.”
The 10 services industries reporting July growth were Arts, Entertainment & Recreation; Accommodation & Food Services; Mining; Construction; Management of Companies & Support Services; Transportation & Warehousing; Public Administration; Finance & Insurance; Health Care & Social Assistance, and Utilities. The eight industries reporting a July decrease in the were Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Wholesale Trade; Retail Trade; Professional, Scientific & Technical Services; Information; Educational Services, and Other Services.
On the manufacturing side, economic activity in the manufacturing sector contracted in July for the fourth consecutive month and the 20th time in the last 21 months, registering 46.8% in July, down 1.7 percentage points from the 48.5% recorded in June. ISM noted that a Manufacturing PMI above 42.5% over a period of time generally indicates an expansion of the overall economy.
Five manufacturing industries reported growth in July: Printing & Related Support Activities; Petroleum & Coal Products; Miscellaneous Manufacturing; Furniture & Related Products, and Nonmetallic Mineral Products. Eleven industries reported July contraction: Primary Metals; Plastics & Rubber Products; Machinery; Electrical Equipment, Appliances & Components; Transportation Equipment; Fabricated Metal Products; Food, Beverage & Tobacco Products; Wood Products; Paper Products; Chemical Products; and Computer & Electronic Products.
