US S&P Global July Services PMI Contracts to 26 Month Low 47.0 as Economy Shrivels

The key S&P Global July US services PMI collapsed to 47.0 vs 52.6 expected to a 26-month low., prior was 52.7 as growth for the services sector collapsed. The service Sector accounts for over 80% of the US GDP.  Services industries many supply chain disruptions bringing inflation risk and challenges with labor and product. The Flash US PMI Composite Output Index came in at 47.5 (June: 52.3) a 26-month low. The Flash US Manufacturing PMI was at 52.3 (June: 52.7) 24-month low

US July 2022 S&P Global Flash PMI

The dividing line between expansion and contraction is 50.0%.

  • US PMI Flash Services Business Activity Index at 47.0 (June: 52.7) vs 52.6 expected. 26-month low.
  • US PMI Flash Manufacturing Output Index at 49.9 (June: 50.2) vs 52.6 expected. 25-month low.
  • US PMI Flash Manufacturing PMI at 52.3 (June: 52.7). vs 52.0 expected 24-month low.
  • US PMI Flash Composite Output Index at 47.5 (June: 52.3). 26-month low.
  • Data were collected 06-21 July

US private sector firms indicated the first contraction in business activity since June 2020 in July, according to latest ‘flash’ PMI™ data from S&P Global. The report highlighted the fact that the downturn in output signaled a further loss of momentum across the economy of a degree not seen outside of COVID-19 lockdowns since 2009. The downturn was led by a steep drop-in service sector activity, though production at manufacturers also fell marginally, down for the first time in over two years.

Although new orders returned to expansion territory during July, following a contraction in demand during June, the increase was only modest and, with the exception of June’s decline, was the weakest in the past two years.

Companies noted that weak demand conditions stemmed from severe inflationary pressures and hikes in interest rates, which have exerted further strain on domestic client spending. Foreign client demand also weakened, causing new export orders to fall for a second successive month.

Comments in the Report

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

“The preliminary PMI data for July point to a worrying deterioration in the economy. Excluding pandemic
lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis, with the
survey data indicative of GDP falling at an annualised rate of approximately 1%. Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook.

“An increased rate of order book deterioration, with backlogs of work dropping sharply in July, reflects an
excess of operating capacity relative to demand growth and points to output across both manufacturing and services being cut back further in coming months unless demand revives. However, with companies’ expectations of future growth slumping to the lowest since the early days of the pandemic, any such revival is not being anticipated. Instead, firms are already reassessing their production and workforce needs, resulting in slower employment growth.

“Although supply constraints remained problematic, constraining economic activity, the weakening demand environment has helped to alleviate inflationary pressures. Average prices charged for goods and
services consequently rose at a much-reduced rate in July, the rate of inflation still running high by historical standards but now down to a 16-month low to provide some much-needed good news amid the ongoing cost of living crisis”

Source: SPGlobal

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