Key Takeaways:
US services activity expanded for a 25th straight month in July, but a jump in the prices index to 70.3 keeps the Federal Reserve's inflation fight in focus.
US services activity held near a two-decade high in July, with the Institute for Supply Management's gauge edging up to 54.1 from 54.0 in June, even as a prices index climbed to 70.3 — the fourth reading above 70 in five months — keeping pressure on the Federal Reserve to extend its tightening cycle.
"In July, the Services PMI registered 54.1 percent, an increase of 0.1 percentage point compared to June's figure of 54 percent," said Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management Services Business Survey Committee. "The Business Activity Index remained in expansion territory, increasing 3.7 percentage points to 59.1 percent, and the New Orders Index registered 57.2 percent, 2.1 percentage points above June."
The headline reading came in just below the 54.5 consensus forecast, though it remained comfortably above the 50 threshold that separates expansion from contraction and 0.7 percentage point above the 12-month average of 53.4. The details were mixed: business activity posted its second-highest reading since May 2024 at 59.1 percent, while the employment index dropped back into contraction at 47.4 percent — down 3.8 points from June and its lowest since March — after a single month of expansion. The prices index has now exceeded 60 percent for 20 straight months, lifting its 12-month average to 68.1 percent, the highest since April 2023.
The report implies the overall economy is expanding for a 74th straight month, with the July reading corresponding to a 1.9 percent annualized increase in real gross domestic product, according to ISM. That resilience, combined with sticky price pressures, complicates the Fed's path after Chair Kevin Warsh signaled no rush to deliver the additional rate hike some officials believe is already warranted. Core personal consumption expenditures inflation ran at 3.3 percent year over year in June, still well above the central bank's 2 percent target.
Thirteen of 17 services industries reported growth in July, led by retail trade, transportation and warehousing, and wholesale trade, while agriculture, other services, health care and social assistance, and real estate contracted. Respondents cited the World Cup as a driver of business activity and new orders, while tariff impacts and the Middle East conflict were mentioned less frequently than in prior months. Supplier deliveries slowed for a 20th straight month, with technical labor and memory components in short supply and some buyers extending ordering windows to secure long-lead items.
The next ISM services report, covering August data, is due Sept. 3. With the prices index running near multi-year highs and employment back in contraction, the data point to an economy that is still growing but carrying inflation pressures that could keep the Fed's policy stance restrictive into the fourth quarter.
This article is for informational purposes only and does not constitute investment advice.
