Economic activity in the services sector grew in July for the second consecutive month and retail was among those industries that saw gains, according to purchasing and supply executives in the United States polled by the Institute for Supply Management.
In the latest Services ISM Report On Business, the Purchasing Managers Index indicated expansion at 50.1%, just above the 50-percent breakeven point between growth and contraction for the 12th time in the last 13 months.
The report, issued by Steve Miller, chair of the ISM Services Business Survey Committee, stated that the July number was 0.7 percentage points lower than the June figure of 50.8% but in expansion territory for the second month in a row.
“The Business Activity Index remained in expansion in July, registering 52.6%,” Miller noted, “1.6 percentage points lower than the reading of 54.2% recorded in June. This index has not been in contraction territory since May 2020. The New Orders Index also remained in expansion territory in July, recording a reading of 50.3%, a drop of one percentage point from the June figure of 51.3%. The Employment Index was in contraction territory for the second month in a row and the fourth time in the last five months. The reading of 46.4% is 0.8 percentage points lower than the 47.2% recorded in June. The Supplier Deliveries Index registered 51%, 0.7 percentage points higher than the 50.3% recorded in June. This is the eighth consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance.”
Supplier Deliveries is the only ISM Report On Business index that is inversed, as a reading above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“The Prices Index registered 69.9% in July, a 2.4-percentage point increase from June’s reading of 67.5%,” Miller maintained. “The index has exceeded 60% for eight straight months, with July’s reading the highest since October 2022: 70.7%. The Inventories Index was in expansion territory in July for its second month in a row, registering 51.8%, a decrease of 0.9 percentage points from June’s figure of 52.7%. The Inventory Sentiment Index expanded for the 27th consecutive month, registering 53.2%, down 3.9 percentage points from June’s figure of 57.1%. The Backlog of Orders Index was in contraction territory for the fifth month in a row, registering 44.3% in July, a 1.9-percentage point increase from the June figure of 42.4%.”
Miller pointed out that the Services PMI has expanded in 58 of the past 62 months, dating back to June 2020. The July 50.1% reading is 2.2 percentage points below the 12-month average reading of 52.3%.
He added, “July’s PMI level continues to reflect slow growth, and survey respondents indicated that seasonal and weather factors had negative impacts on business. The Employment Index’s continued contraction and faster expansion of the Prices Index are worrisome developments. The New Exports and Imports indexes, which both moved from expansion to contraction, provided signals that tariff tensions are impacting global trade. However, continued expansion in the Business Activity and New Orders indexes, together with a slight improvement in the Backlog of Orders Index, highlight the resilience of the U.S. services sector. Some respondents noted increased transportation congestion that supported the ‘slower’ Supplier Deliveries Index reading, another sign that activity levels are expanding. The most common topic among survey panelists remained tariff-related impacts, with a noticeable increase in commodities listed as up in price.”
The New Exports index slipped 3.2 percentage points in July, as the Imports index slid 5.8 points, according to Miller.
Services industries reporting growth in July were: Transportation & Warehousing; Wholesale Trade; Finance & Insurance; Retail Trade; Other Services; Management of Companies & Support Services; Public Administration; Real Estate, Rental & Leasing; Information; Utilities; and Health Care & Social Assistance. The industries reporting a contraction in July were: Accommodation & Food Services; Construction; Mining; Educational Services; Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation, and Professional, Scientific & Technical Services.
For its part, economic activity in the manufacturing sector contracted in July for the fifth consecutive month, after a two-month expansion preceded by 26 straight months of contraction. The Manufacturing PM registered 48% in July, a one-percentage point decrease compared to the 49% recorded in June. The overall economy continued expanding for the 63rd month after one month of contraction in April 2020, ISM noted, as a Manufacturing PMI above 42.3%, over a period of time, generally indicates an expansion of the overall economy.
Manufacturing industries reporting growth in July were: Apparel, Leather & Allied Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Textile Mills; Miscellaneous Manufacturing; Furniture & Related Products, and Primary Metals. The 10 industries reporting a contraction in July were: Printing & Related Support Activities; Paper Products; Chemical Products; Machinery; Wood Products; Fabricated Metal Products; Computer & Electronic Products; Transportation Equipment; Electrical Equipment, Appliances & Components; and Food, Beverage & Tobacco Products.
