FX.co ★ U.S. Services Index Indicates Turnaround In July

The U.S. service sector activity returned to positive territory in July, as reported by the Institute for Supply Management (ISM) on Monday.

The ISM's services PMI rose to 51.4 in July from 48.8 in June, surpassing economists' expectations of a rise to 51.0. A reading above 50 signifies growth. The greater-than-anticipated increase reflected a revival in both new orders and business activity.

Specifically, the new orders index soared to 52.4 in July from 47.3 in June, while the business activity index increased to 54.5 from 49.6. Additionally, the employment index jumped to 51.1 from 46.1, indicating a rebound in service sector employment.

Conversely, the supplier deliveries index declined to 47.6 in July from 52.2 in June, indicating contraction for the first time, while the other three indexes indicated expansion since November 2023. The prices index edged up to 57.0 from 56.3, suggesting a marginally quicker rate of price growth.

"Survey respondents noted that increased costs are affecting their businesses, with generally positive comments on business activity being either flat or gradually expanding," said Steve Miller, Chair of the ISM Services Business Survey Committee. "Comments also reflected a wait-and-see approach regarding the upcoming presidential election, with concerns about potential tariff increases," he added. "Many respondents mentioned a return to more stable supply chain performance, albeit at higher costs."

Separately, last Thursday the ISM released a report revealing an unexpected contraction in U.S. manufacturing activity in July. The manufacturing PMI fell to 46.8 from 48.5, against economists' expectations of a slight increase to 48.8. This marked the lowest level for the manufacturing PMI since it hit 46.6 in November 2023.