Service sector data a bright spot amid recent concerns about the US economy

U.S. services sector data released Monday surprised economists by showing a bigger-than-expected increase in July, with new orders rising and employers adding workers.

The Institute for Supply Management (ISM)’s Purchasing Managers’ Index (PMI) for the services sector in July was 51.4%.above 50.9% obtained by economists surveyed by “Wall Street Journal” AND Dow Jones Newswires designed. The indicator rebounded from a 48% decline the previous month. A reading above 50% indicates expansion in the services sector.

The monthly survey showed employers added staff for only the second time in 2024, while new orders also rose in July. After last week’s jobs report showed hiring slowed in July, economists said the latest reading of the ISM services index showed the economy still had some strength.

“As global financial markets sell off assets on concerns that the U.S. economy could be on thin ice, the ISM Services Index is a reminder that service sector activity remains strong,” Wells Fargo economists Tim Quinlan and Shannon Seery Grein wrote.

The ISM data for the services sector contrasts with the results of the recent survey of the manufacturing sector, with last week’s ISM data showing a fourth consecutive month of contraction in the manufacturing sector.

Data shows employment growth

Wells Fargo’s note said that while ISM employment data shows improvement, gains in the labor market are concentrated in a few areas, and other segments continue to show signs of slowing.

“Although the employment component has begun to expand again, only eight of 18 industries reported employment gains last month, consistent with the slower pace of hiring seen elsewhere,” Wells Fargo said in a note.

S&P Services PMI also shows business expansion

The S&P Global Services PMI came in at 55.0, down from a month earlier and below economists’ forecasts of 55.9. As with the ISM data, a reading above 50 indicates improving economic activity in the services sector.

“Another strong expansion in economic activity in the services sector, which has enjoyed its best period of growth in more than two years over the past two months, contrasts with a worsening picture in the manufacturing sector, where output came close to a standstill in July,” wrote Chris Williamson, chief business economist at S&P Global Market Intelligence.