Growth in the US services sector unexpectedly strengthened to a three-month high in July on firmer business activity and orders, easing concerns of a broader economic slowdown.
The Institute for Supply Management’s index rose to 56.7 from 55.3 a month earlier, data showed Wednesday. Readings above 50 indicate growth and the July result exceeded the most-optimistic forecast in a Bloomberg survey of economists. The median projection was 53.5.
The group’s gauge of business activity, which parallels the ISM factory production index, rose to the highest level since the start of the year, while new orders growth was the healthiest in four months.
The services data stand in contrast to a separate ISM report on Monday that showed manufacturing grew at the slowest pace in just over two years as more factories dialed back production in the face of shrinking orders and rising inventories. Goods-demand has fallen as consumers shift more of their spending to services in a pandemic reset.
The ISM report also conflicts with separate figures Wednesday from S&P Global showing the services sector contracted last month for the first time in two years. The S&P data revealed sharp declines in output and business confidence on softer demand, high prices, and tightening financial conditions.
Thirteen services industries in the ISM survey reported growth last month, led by mining and real estate, while three indicated declining performance.
Select ISM Industry Comments
“Restaurant sales have softened the past few weeks (due to) post-holiday and seasonality factors, but we’re also hearing because of consumer pressures, particularly fuel and food prices. Staffing remains a challenge in some markets.” - Accommodation & Food Services
“Interest rates have significantly impacted the homebuilding market. Cancellation rates have increased, as homebuyers can no longer afford the monthly payment. Traffic to our communities is down. Inflation has sidelined many would-be buyers.” - Construction
“Can feel the economy weakening. Clients are making appropriate moves in anticipation of a recession.” - Management of Companies & Support
“Hiring demand remains robust in most industry sectors. Tech has had a slowdown in hiring and layoffs. It’s still a candidate’s market.” - Professional, Scientific & Technical Services
“(We are) in inventory reduction mode, attempting to match inventory levels to current lower sales trends.” - Retail Trade
“Holding steady, but some headwinds are definitely ahead on the economic front. However, supply chain issues appear to be easing, though still not great.” - Utilities
“Food service remains strong. Retail is softening as mass is overly concerned about inventory and consumer spending.” - Wholesale Trade
Supplier delivery times for services continued to lengthen, though at the slowest pace since the beginning of 2021, helping firms make progress on backlogs. The measure of unfilled orders reversed some of the sharp increase in June.
A measure of prices paid by service providers fell to 72.3, the lowest level since February of last year, from 80.1. The 7.8 point-drop coincides with an even larger pullback in prices paid by goods-producers and suggests an easing of inflationary pressures amid declining fuel costs.
A gauge of inventories at service providers dropped to its lowest point since October, showing a faster reduction in stockpiles. A separate measure of inventory sentiment indicated respondents view their existing supplies and materials as better in line with demand.
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