US Services Sector Grows at Slowest Pace in Five Month in July – S&P Global PMI

The Flash S&P Global Flash US Services Business Activity Index for July increased to 53.7%, below a consensus 51.5% and just over 52.6% in March. The rate of expansion eased to the slowest for five months. Services firms reported the slowest rise in employment for six months in July, continuing to highlight challenges retaining and attracting staff due to rising wage costs. Some firms also noted a lack of skilled candidates for open vacancies S&P reported. Service providers recorded a marginal rise in outstanding business, with the pace of growth little changed from that seen in June.

Business activity for the services sector, which comprises the largest component of U.S. economic activity, had quickly rebounded into growth mode after contracting for the first time since May 2020 in December. The sector has grown in 33 of the last 34 months, with the lone contraction in December. This is supportive for the soft-landing scenario.

via Cheatsheet

The dividing line between expansion and contraction is 50.0%.

Flash US PMI Composite Output Index for July 2023

  • Flash US PMI Composite Output Index at 52.0 (June: 53.2). 5-month low.
  • Flash US Services Business Activity Index at 52.4 (June: 54.4). 5-month low.
  • Flash US Manufacturing Output Index at 50.2 (June: 46.9). 2-month high.
  • Flash US Manufacturing PMI at 49.0 (June: 46.3). 3-month high
United States S&P Global Composite PMI

S&P Global Flash US Services PMI July 2023 Highlights

  • Flash US Services Business Activity Index at 52.4 (June: 54.4). 5-month low
  • Further rise in business activity during July, with the service sector continuing to drive growth. The rate of expansion eased to the slowest for five months, as service providers registered a softer upturn in output .
  • New orders remained in expansion territory, albeit rising at a softer pace. A sustained rise in new export orders for services helped support the upturn as domestic demand lost some momentum, often due to higher interest rates.
  • On the price front, elevated cost pressures continued to be led by the service sector. However, manufacturers saw a renewed rise in input prices, and services firms reported a slower uptick in operating expenses.
  • The rate of job creation was only marginal, however, and the weakest since January. Manufacturers and service providers alike recorded growth in employment, with goods producers registering a stronger uptick in staffing numbers. Some manufacturing companies noted that the solid rise in payrolls was due to greater ease of hiring, with some also mentioning an improvement in employee retention and improved confidence in the outlook.
  • In contrast, services firms reported the slowest rise in employment for six months in July, continuing to highlight challenges retaining and attracting staff due to rising wage costs. Some firms also noted a lack of skilled candidates for open vacancies.
  • Service providers, however, recorded a marginal rise in outstanding business, with the pace of growth little changed from that seen in June.
  • Service providers recorded an elevated pace of increase in operating expenses, with wage costs the main driver behind inflation amid greater challenges to retain staff.
  • Firms sought to pass through higher costs and increased interest rate payments to customers, with the overall rise driven by service providers.
  • The pace of increase at services firms was steeper than the long-run series average. Goods producers noted little change in selling prices, with the rate of inflation the joint-slowest in the current 38-month sequence of increase.
  • Relatively subdued optimism stemmed from the service sector, where predictions for business activity weakened.

Comments

Commenting on the US flash PMI data, Chris Williamson, Chief Business Economist at S&P Global
Market Intelligence said:

“July is seeing an unwelcome combination of slower economic growth, weaker job creation, gloomier business confidence and sticky inflation.

“The overall rate of output growth, measured across manufacturing and services, is consistent with GDP
expanding at an annualized quarterly rate of approximately 1.5% at the start of the third quarter. That’s
down from a 2% pace signaled by the survey in the second quarter.

“However, growth is being entirely driven by the service sector, and in particular rising spend from international clients, which is helping offset a becalmed manufacturing sector and increasingly subdued demand from US households and businesses.

“Furthermore, business optimism about the year-ahead outlook has deteriorated sharply to the lowest seen so far this year. The darkening picture adds downside risks to output growth in the coming months which, alongside the slowing in the pace of expansion in July, will keep alive fear that the US economy may yet succumb to another downturn before the year is out.

“The stickiness of price pressures meanwhile remains a major concern. As the survey index of selling prices has acted as a reliable leading indicator of consumer price inflation, anticipating the easing to 3% in June, it sends a worrying signal that further falls in the rate of inflation below 3% may prove elusive in the near term.”

About the PMI™ (Purchasing Managers’ Index™)

The US PMI™ (Purchasing Managers’ Index™) is produced by S&P Global and is based on original survey data collected from a representative panel of around 800 companies based in the US manufacturing and service sectors. The flash estimate is based on around 85% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

The average differences between the flash and final PMI index values (final minus flash) since comparisons were first available in October 2009 are as follows (differences in absolute terms provide the better indication of true variation while average differences provide a better indication of any bias)

The Purchasing Managers’ Index™ (PMI ™) survey methodology has developed an outstanding reputation for providing the most up-to-date possible indication of what is really happening in the private sector economy by tracking variables such as sales, employment, inventories and prices. The indices are widely used by businesses, governments and economic analysts in financial institutions to help better understand business conditions and guide corporate and investment strategy. In particular, central banks in many countries (including the European Central Bank) use the data to help make interest rate decisions. PMI ™ surveys are the first indicators of economic conditions published each month and are therefore available well ahead of comparable data produced by government bodies.

S&P Global do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Historical data relating to the underlying (unadjusted) numbers, first published seasonally adjusted series and subsequently revised data are available to subscribers from S&P Global.

Final July data are published on 1 August for manufacturing and 3 August for services and composite indicators

Source: S&P Global

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