U.S. services sector rebounds in July; employment also recovers

 

U.S. service sector activity rebounded from a four-year low in July, with new orders rebounding and employment rising for the first time in six months, potentially helping to calm recession fears sparked by last month's surge in unemployment and an ongoing stock market selloff. The Institute for Supply Management (ISM) said on Monday that its non-manufacturing purchasing managers' index (PMI) rose to 51.4 last month from 48.8 in June, the lowest level since May 2020. A PMI reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy. The ISM believes that over time, readings above 49 generally indicate that the overall economy is expanding.

Government data released on Friday showed the unemployment rate rose to 4.3% in July, the highest level in nearly three years, from 4.1% in June. The labor market is slowing as the Federal Reserve's sharp interest rate hikes in 2022 and 2023 dampen demand. The U.S. central bank last week kept its benchmark overnight interest rate in a range of 5.25%-5.50%, a level it has held for more than a year, but opened the door to lower borrowing costs at its next meeting as early as September. Financial markets are also pricing in rate cuts in November and December.

The ISM survey's gauge of new orders rebounded to 52.4 from 47.3 in June, the lowest level since December 2022. Its services employment gauge rose to 51.1 from 46.1 in June, the first increase since January. The index rose 5 points, its second-biggest gain in more than three years, following a 6.7-point gain in January.

This would support the view that the slowdown in nonfarm payrolls in July does not signal the start of a deterioration in the labor market. Nonfarm payrolls increased by 114,000 jobs last month, the second-smallest increase this year, while service providers added just 72,000 jobs, the first since December 2020 when both services and overall employment fell. lowest level. Services inflation picked up slightly in July, but that may not be enough to reverse weakening price pressures. The ISM service input payment price index rose slightly to 57.0 from 56.3 in June.