The service sector grew faster than expected in July on the back of broad-based increasing business activities and new orders, the Institute for Supply Management reported on Wednesday.
The top-line composite index inched up to 56.7 in July from 55.3 in June, the 26th consecutive month of expansion since the start of the pandemic. An index above 50.1 means overall expansion over time.
The other good news is that inflation might be taking a sharp downward turn, according to surveyed service providers. The prices paid subindex fell to 72.3 from 80.1 previously, although it remained elevated compared to historical standards.
Similar to the report on the manufacturing sector coming out on Monday from the ISM, the service employment index, while slightly improved, fell to contractionary territory for the second straight month.
The results from both sectors reaffirm our forecast for a material slowdown in job gains to 225,000 in July, which will be released on Friday.
The imbalance between supply and demand continued to ease in July as a backlog of orders declined while inventory sentiment improved.
The takeaway
The service sector remained a bright spot in July as recession fears continued to rise. However, many market participants are changing their strategies in anticipation of a substantial economic slowdown. We expect the pullback in demand and spending will keep service sector growth decelerating in the coming months.
