| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 53.0 | 52.0 to 54.7 | 52.7 | 53.9 |
Highlights
Business activity in the US service sector was in positive territory for the seventh straight month in July but the overall index posted a slight pullback as business activity, new orders and employment slipped after surging in June, according to the latest survey by the Institute for Supply Management (ISM) released Thursday.
The ISM sees an uptick in the prices paid index in July as not concerning because it is still well below the pandemic peak, thanks to generally improving supply chains and an easing trend in overall consumer prices.
The main index, which shows the directional change of economic activity, dipped 1.2 percentage points to 52.7 after rising 3.6 points to a four-month high of 53.9 in June, falling 1.6 points to 50.3 in May, edging up 0.7 point to 51.9 in April, slipping to 51.2 in March from 55.1 in February, surging 6.0 points to 55.2 in January and plunging 6.3 points to 49.2 in December, which was the first contraction since May 2020, when it registered 45.4.
The index came in slightly weaker than the median economist forecast of 53.0. It is well above the recent low of 41.7 hit in April 2020 and 40.1 in March 2009, which is the lowest since the inception of the Services PMI in 2008. But it also remains well below the record high of 68.4 reached in November 2021.
"There has been a slight pullback in the rate of growth for the services sector," Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement."This is due mostly to the decrease in the rate of growth for business activity, new orders and employment, as well as ongoing faster delivery times."
"The majority of respondents are cautiously optimistic about business conditions and the overall economy," he said.
"We are on solid footing right now," he told reporters."It's just hard to see what might happen down the road." Service providers are cautious because there are so many things going on, including heightened geopolitical risks, he said.
A firm in the management of companies and support services category told the ISM,"We are maintaining a cautious approach, although inflation seems to be easing. The overall business environment has stabilized, but tight labor markets are creating ongoing issues."
"Hiring of employees, temporary workers and consultants continues to be slow as companies remain cautious about increasing fixed and variable expenses during uncertain economic times," a company in the professional, scientific and technical services industry said.
Nieves told reporters that there are no signs of recession in the US economy.
"I don't see a comment at all referencing recession," he said about the latest ISM survey."Prices are moderating, we still have low unemployment and we are still growing… so we don't have any of the variables in play for recession."
Asked about the uptick in the prices paid index in July, Nieves replied,"Prices are still in decent territory. They all continue to go up but not at the rates we've seen in the past."
"Right now I'm not concerned about it," he said, adding that the prices index is still"very consistent" with the historical trend between 50s and 60s.
On the impact of stock market fluctuations on the service sector's sentiment, Nieves said sometimes ISM reports affect stock markets but"it's not the other way around." The stock market selloff in reaction to the rating agency Fitch downgrading US debt this week was"too recent" to be reflected in the July ISM survey, he said, adding,"Maybe we will see some comments next month."
ISM data released Tuesday showed US manufacturing activity was in contraction territory for the ninth straight month in July as firms sought to balance output levels and reduce payrolls through a combination of layoffs, hiring freezes and attrition amid soft demand and uncertainty over the timing of recovery. The sector index rose 0.4 percentage point to 46.4 in July on slight upticks in contracting new orders and production.
Of the four sub-indexes that directly factor into the services PMI, growth in business activity took a breather in July after a jump in June; the pace of increase in new orders slowed slightly; employment indicated growth but at a slower pace; and supply deliveries stayed on a recovery track.
The business activity index slipped back 2.1 percentage points to a still solid 57.1 in July after jumping 7.7 points to a five-month high of 59.2 in June to recover most of its declines seen in the previous four months. The readings of 51.5 in May and 52.0 in April were three-year lows.
The new orders index edged down 0.5 point to 55.0 from 55.5 in June, when it rose 2.6 points. The index indicated expansion for the seventh consecutive month after contracting in December for the first time since May 2020.
The employment index fell 2.4 points to 50.7 in July after rebounding 3.9 points to 53.1 in June and slipping below the key 50 line for the first time in five months in May to 49.2, the lowest since 49.2 recorded in October 2022. The employment picture remains mixed as some firms continue struggling to find workers.
The supplier deliveries index -- the only ISM index that is inversed -- registered 48.1 in July, 0.5 point higher than the 47.6 recorded in June. In the last six months, the average reading of 47.6 (with a low of 45.8 in March) reflects the fastest supplier delivery performance since June 2009, when the index stood at 46.0.
A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
In other details, the prices index rose 2.7 points to a three-month high of 56.8 in July after 2.1 points to 54.1 in June for the lowest since 50.4 in March 2020. The index remains well below its record high of 83.2 hit in April and February 2022.
The inventories index fell for the second straight month, down 5.5 points at 50.4 in July, after slipping 2.4 points to 55.9 in June, surging 11.1 points to 58.3 in May and falling 5.6 points to 47.2 in April.
The index for backlog orders rose 8.2 points to 52.1 in July to be in expansion territory for the first time in five months in light of improving supply chains, after rising 3.0 points to 43.9 in June and falling 8.8 points to 40.9 in May, which was the lowest reading since 40.0 in May 2009.
The new export orders index fell 0.4 point to 61.1 in July after rebounding 2.5 points to 61.5 in June and falling 1.9 points to 59.0 in May. Of the total respondents in July, 68 percent indicated they do not perform, or do not separately measure, orders for work outside of the US.
The ISM sees an uptick in the prices paid index in July as not concerning because it is still well below the pandemic peak, thanks to generally improving supply chains and an easing trend in overall consumer prices.
The main index, which shows the directional change of economic activity, dipped 1.2 percentage points to 52.7 after rising 3.6 points to a four-month high of 53.9 in June, falling 1.6 points to 50.3 in May, edging up 0.7 point to 51.9 in April, slipping to 51.2 in March from 55.1 in February, surging 6.0 points to 55.2 in January and plunging 6.3 points to 49.2 in December, which was the first contraction since May 2020, when it registered 45.4.
The index came in slightly weaker than the median economist forecast of 53.0. It is well above the recent low of 41.7 hit in April 2020 and 40.1 in March 2009, which is the lowest since the inception of the Services PMI in 2008. But it also remains well below the record high of 68.4 reached in November 2021.
"There has been a slight pullback in the rate of growth for the services sector," Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement."This is due mostly to the decrease in the rate of growth for business activity, new orders and employment, as well as ongoing faster delivery times."
"The majority of respondents are cautiously optimistic about business conditions and the overall economy," he said.
"We are on solid footing right now," he told reporters."It's just hard to see what might happen down the road." Service providers are cautious because there are so many things going on, including heightened geopolitical risks, he said.
A firm in the management of companies and support services category told the ISM,"We are maintaining a cautious approach, although inflation seems to be easing. The overall business environment has stabilized, but tight labor markets are creating ongoing issues."
"Hiring of employees, temporary workers and consultants continues to be slow as companies remain cautious about increasing fixed and variable expenses during uncertain economic times," a company in the professional, scientific and technical services industry said.
Nieves told reporters that there are no signs of recession in the US economy.
"I don't see a comment at all referencing recession," he said about the latest ISM survey."Prices are moderating, we still have low unemployment and we are still growing… so we don't have any of the variables in play for recession."
Asked about the uptick in the prices paid index in July, Nieves replied,"Prices are still in decent territory. They all continue to go up but not at the rates we've seen in the past."
"Right now I'm not concerned about it," he said, adding that the prices index is still"very consistent" with the historical trend between 50s and 60s.
On the impact of stock market fluctuations on the service sector's sentiment, Nieves said sometimes ISM reports affect stock markets but"it's not the other way around." The stock market selloff in reaction to the rating agency Fitch downgrading US debt this week was"too recent" to be reflected in the July ISM survey, he said, adding,"Maybe we will see some comments next month."
ISM data released Tuesday showed US manufacturing activity was in contraction territory for the ninth straight month in July as firms sought to balance output levels and reduce payrolls through a combination of layoffs, hiring freezes and attrition amid soft demand and uncertainty over the timing of recovery. The sector index rose 0.4 percentage point to 46.4 in July on slight upticks in contracting new orders and production.
Of the four sub-indexes that directly factor into the services PMI, growth in business activity took a breather in July after a jump in June; the pace of increase in new orders slowed slightly; employment indicated growth but at a slower pace; and supply deliveries stayed on a recovery track.
The business activity index slipped back 2.1 percentage points to a still solid 57.1 in July after jumping 7.7 points to a five-month high of 59.2 in June to recover most of its declines seen in the previous four months. The readings of 51.5 in May and 52.0 in April were three-year lows.
The new orders index edged down 0.5 point to 55.0 from 55.5 in June, when it rose 2.6 points. The index indicated expansion for the seventh consecutive month after contracting in December for the first time since May 2020.
The employment index fell 2.4 points to 50.7 in July after rebounding 3.9 points to 53.1 in June and slipping below the key 50 line for the first time in five months in May to 49.2, the lowest since 49.2 recorded in October 2022. The employment picture remains mixed as some firms continue struggling to find workers.
The supplier deliveries index -- the only ISM index that is inversed -- registered 48.1 in July, 0.5 point higher than the 47.6 recorded in June. In the last six months, the average reading of 47.6 (with a low of 45.8 in March) reflects the fastest supplier delivery performance since June 2009, when the index stood at 46.0.
A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
In other details, the prices index rose 2.7 points to a three-month high of 56.8 in July after 2.1 points to 54.1 in June for the lowest since 50.4 in March 2020. The index remains well below its record high of 83.2 hit in April and February 2022.
The inventories index fell for the second straight month, down 5.5 points at 50.4 in July, after slipping 2.4 points to 55.9 in June, surging 11.1 points to 58.3 in May and falling 5.6 points to 47.2 in April.
The index for backlog orders rose 8.2 points to 52.1 in July to be in expansion territory for the first time in five months in light of improving supply chains, after rising 3.0 points to 43.9 in June and falling 8.8 points to 40.9 in May, which was the lowest reading since 40.0 in May 2009.
The new export orders index fell 0.4 point to 61.1 in July after rebounding 2.5 points to 61.5 in June and falling 1.9 points to 59.0 in May. Of the total respondents in July, 68 percent indicated they do not perform, or do not separately measure, orders for work outside of the US.
Market Consensus Before Announcement
ISM services are expected to slow 9 tenths in July to 53.0 versus 53.9 in June which was more than 3 points above expectations.
Definition
Producing a monthly composite on general activity tracked in volumes, the Institute for Supply Management surveys several hundred service-providing firms from 16 industries (construction and mining are included). The services composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation: a reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM services index, investors will know what the economic backdrop is for the various markets. The services index is a composite of four equally weighted components: business activity, new orders, employment, and supplier deliveries. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this report goes back to 1997. Note that in 2020 the ISM changed the name of the report to services from non-manufacturing though it continues to track two key goods producing industries: construction and mining.
