Economic activity in the services sector continued to expand in July, according to the latest ISM Services PMI Report. The Services PMI registered 54.1%, the 25th consecutive month in expansion territory.
The report was issued by Steve Miller, chair of the Institute for Supply Management (ISM) services business survey committee: “In July, the Services PMI registered 54.1%, an increase of 0.1 percentage point compared to June’s figure of 54%. The Business Activity Index remained in expansion territory in July, increasing 3.7 percentage points to 59.1% from June’s reading of 55.4%. The New Orders Index registered 57.2%, 2.1 percentage points above June’s figure of 55.1%. The Employment Index returned to contraction territory after only one month in expansion with a reading of 47.4%, a 3.8-percentage point decrease from the 51.2% recorded in June.”
Miller said, “The Supplier Deliveries Index registered 52.8%, 1.6 percentage points lower than the 54.4% recorded in June. This is the 20th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance. (Supplier Deliveries is the only ISM PMI Reports index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.) The Prices Index registered above 70% for the fourth time in five months; the reading of 70.3% in July is 2.6 percentage points above June’s figure of 67.7%. The index has exceeded 60% for 20 straight months and increased its 12-month average by 0.1 percentage point to 68.1%, its highest since April 2023.”
Miller continued, “The Inventories Index registered 51.4%, up 0.2 percentage point from June’s figure of 51.2%. The Inventory Sentiment Index expanded for the 39th consecutive month, registering 52.5%, down 0.1 percentage point from June’s figure of 52.6%. The Backlog of Orders Index remained in expansion territory for a sixth straight month, decreasing 4 percentage points to 50.9% in July from June’s reading of 54.9%. The New Export Orders remained at or above 50% for the sixth month in a row, registering 52%, an increase of 1.6 percentage points compared to the 50.4% recorded in June. The Imports Index returned to expansion territory at 51.8% in July, an increase of 2.4 percentage points compared to its June reading of 49.4%, reversing a three-month trend of consecutively lower readings since March.”
Miller added, “Thirteen industries reported growth in July, one fewer than in June; four reported contraction, equaling the June total. The July Services PMI reading of 54.1% is 0.7 percentage point above the 12-month average of 53.4%. For the seventh straight month, that figure increased, with an uptick of 0.3 percentage point over June’s 12-month average of 53.1%. The Prices Index broke the 70-percent threshold for the fourth time in five months, hitting 70.3%. In July, however, the number of commodities reported as down in price increased to six, up from three the previous month. Petroleum-related products and plastics were again reported as commodities up in price. Transformers are no longer reported as a commodity in short supply but were added to the list of those up in price. The Supplier Deliveries Index continued to indicate slower performance; its reading of 52.8% is an easing for its third month in a row and now 0.8 percentage point below its 12-month average of 53.6%.”
Miller said, “The Employment Index (47.4%) dropped below its 12-month average of 48.7% by 1.3 percentage points and is at its lowest level since March. This index has now been below 50% for 12 of the last 18 months. However, the Business Activity Index had its second-highest reading since hitting 60.5% in May 2024, and the New Orders Index had its fifth-highest reading in that time period. There was continued easing of the Supplier Deliveries Index, and eight commodities were listed as in short supply, down from nine in June. Technical labor and memory components continue to have supply challenges, and some respondents mentioned such tactics as extending ordering windows to accommodate longer lead times for other difficult-to-get commodities. Copper and aluminum moved from those listed as up in price to down in price.”
Miller concluded, “Tariff impacts and the Middle East conflict continued to be mentioned by respondents, but much less frequently than in prior reports. The World Cup was again cited in the comments regarding increased business activity and new orders. Overall, the U.S. services economy continues to be resilient. Concerns still exist regarding mortgage and inflation rates, and we are still in the midst of pricing impacts due to the recent run-up in petroleum costs.”
Industry Performance
The 13 services industries reporting growth in July — listed in order — are: retail trade; transportation and warehousing; wholesale trade; management of companies and support services; information; construction; accommodation and food services; public administration; utilities; educational services; mining; professional, scientific and technical services; and finance and insurance. The four industries reporting a contraction in the month of July are: agriculture, forestry, fishing and hunting; other services; health care and social assistance; and real estate, rental and leasing.
