Service sector

U.S. service sector activity increases unexpectedly in July

By Scott Kanowski — U.S. non-manufacturing activity jumped in July, data from the Institute for Supply Management showed on Wednesday, amid fears that a broader inflation-driven slump in the economy only lead to a slowdown in America’s crucial service sector.

The ISM Non-Manufacturing Purchasing Managers Index rose to 56.7 during the month from 55.3 in June and well above estimates of 53.5. The reading has been above the 50 level, suggesting expansion, for 26 months.

“Growth continues – at a faster pace – for the service sector, which has grown for all but two of the past 150 months. The slight increase in service sector growth was due to an increase in commercial activity and new orders,” said Anthony Nieves. , chairman of the ISM Services Business Survey Committee, in a statement.

Nieves added that the rise in the services sector corresponds to a 2.4% increase in real gross domestic product on an annualized basis.

New orders were higher, with the ISM index for this measure coming in at 59.9, as companies said they saw new business inquiries and “moderate volume increases”. That’s up from June’s mark of 55.6 and ends two straight months of contraction.

Meanwhile, prices paid by service firms for materials and services also rose at a slower pace in July, suggesting the potential impact of aggressive policy tightening by the Federal Reserve aimed at curbing economic growth. surge in inflation. The ISM Services Business Price Index came in at 72.3, down from 80.1 the previous month. This is the first reading below 80 since last September and the biggest monthly decline since 2017.

“New orders were significantly higher while the price paid index fell sharply. In sum, it’s the old-fashioned ‘golden loop’ for this data release,” said Mohamed El- Erian, chief economic adviser at Allianz, in a tweet.

The dollar index was trading up 0.32% following the release.

The numbers add up to a complex picture of the current state of the US economy. Last week, second-quarter gross domestic product contracted for a second consecutive month, meaning the United States fell into what is widely considered a “technical recession.”

But Fed Chairman Jerome Powell said the crisis should be taken with a “grain of salt”, adding that he did not believe the economy had entered a recession. Markets were buoyed by the comments as traders pondered the potential end of a rate hike cycle that has weighed on growth.

However, Fed officials have since said borrowing costs will continue to rise from historic lows until searing inflation eases back to the central bank’s 2% target.

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