ISM Reports Continued Economic Activity Expansion in Services Sector

Economic activity in the services sector expanded in July for the seventh consecutive month, as the Services PMI registered 52.7%, according to the latest Services ISM Report on Business from the Institute for Supply Management. The sector has grown in 37 of the last 38 months, with the lone contraction in December of last year.

“In July, the Services PMI registered 52.7%, 1.2 percentage points lower than June’s reading of 53.9%. The composite index indicated growth in July for the seventh consecutive month after a reading of 49.2% in December, which was the first contraction since June 2020 (45.4%),” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the ISM’s services business survey committee, said. “The Business Activity Index registered 57.1%, a 2.1-percentage point decrease compared to the reading of 59.2% in June. The New Orders Index expanded in July for the seventh consecutive month after contracting in December for the first time since May 2020; the figure of 55% is 0.5 percentage point lower than the June reading of 55.5%.

“The Supplier Deliveries Index registered 48.1%, 0.5 percentage point higher than the 47.6% recorded in June. In the last six months, the average reading of 47.6% (with a low of 45.8% in March) reflects the fastest supplier delivery performance since June 2009, when the index registered 46%. (Supplier Deliveries is the only ISM Report on Business 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 was up 2.7 percentage points in July to 56.8%. The Inventories Index expanded in July for the third consecutive month after one month of contraction preceded by two months of growth and eight months of contraction from June 2022 to January 2023; the reading of 50.4% is down 5.5 percentage points from June’s figure of 55.9%. The Inventory Sentiment Index (56.6%, up 2.6 percentage points from June’s reading of 54%) expanded for the third consecutive month after one month of contraction preceded by four months of growth, with a four-month period of contraction before that. The Backlog of Orders Index registered 52.1%, an 8.2-percentage point increase compared to the June figure of 43.9.

“Fourteen industries reported growth in July. The Services PMI, by being above 50% for the seventh month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector. The composite index has indicated expansion for all but three of the previous 161 months.

“There has been a slight pullback in the rate of growth for the services sector. This is due mostly to the decrease in the rate of growth for business activity, new orders and employment, as well as ongoing faster delivery times. The majority of respondents are cautiously optimistic about business conditions and the overall economy.”

The 14 services industries that reported growth in July included construction, transportation and warehousing, and retail trade. The four industries that reported contraction in July included mining; finance and insurance; agriculture, forestry, fishing and hunting; and arts, entertainment and recreation.

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