Report On Business® Roundup: July Services PMI®

August 05, 2024
By Dan Zeiger

A torrent of worrisome economic news — including the Manufacturing ISM® Report On Business® — in recent days culminated in investor panic on Monday morning, with a global market selloff that included the Dow Jones Industrial Average dropping nearly 900 points.

Then, after 10 a.m. ET, the Services ISM® Report On Business® numbers for July seemed to at least tap the brake pedal.

“I’ll tell you what; look at the markets reversing: Equities are moving a bit higher, interest rates are moving higher, and here’s why,” CNBC analyst Rick Santelli said. “The ISM Services data, all of it is much better than anticipated.”

After detailing some of the subindex readings, Santelli concluded, “What we can really garner from this is that it’s better than anticipated, and unlike much of the services sector data we’ve seen, this is more on the positive side. It could have a lasting effect.”

While markets closed significantly lower than the previous day, the Services PMI® reading of 51.4 percent — a return to expansion territory powered by growth in the Business Activity, New Orders and (for the first time in six months) Employment indexes — seemed to help provide stability after a turbulent first hour of trading on Wall Street.

The July numbers continued a recent trend for the services sector, which has yo-yoed between expansion and contraction for the last five months. Despite two recent Services PMI® readings below 50 percent, the sector is growing at a moderate pace, Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® Services Business Survey Committee, told a conference call of reporters on Monday.

“Services is still expanding, but it’s at a much lower growth rate than we’ve seen historically,” he said. “I wonder how much of the continued contraction (the Manufacturing PMI® has been below 50 percent for 20 of the last 21 months) is bleeding into services business and jobs. Many services companies provide support for manufacturing.”

Miller pointed out that the average Services PMI® reading for April through July — 50.9 percent — has been lower just twice in recent history: 2020 (50.3 percent), as the coronavirus pandemic raged, and 2009 (45.4 percent), in the wake of the global financial crisis. While the services sector has been able to carry the U.S. economy amid manufacturing’s slump, that is getting more difficult.

And whether August will bring another month of growth is tough to forecast. It’s typically an interesting month for the sector, as vacation and experience spending tapers with school resuming. Among the 10 industries that reported growth in July, at least four — Arts, Entertainment & Recreation, Accommodation & Food Services, Construction and Health Care & Social Assistance — typically thrive in the summer months, when the weather is good and people have more time.

“The length of our busy season — typically March to mid-June — has extended into mid-July. Volumes have not increased considerably, but the consistency of shipments has been a benefit to our supply chain,” wrote a Business Survey Committee respondent in Agriculture, Forestry, Fishing & Hunting.

In July, the Business Activity Index registered 54.5 percent, a 4.9-percentage point gain compared to June, while the New Orders Index reading of 52.4 percent was a 5.1-point increase. The Backlog of Orders Index (which does not directly factor into the PMI®) was up 6.6 percentage points, to 50.6 percent.

Despite the uptick in those demand measurements, supply chain performance improved, as the Supplier Deliveries Index went into contraction (or “faster”) territory with a reading of 47.6 percent, down 4.6 percentage points. And the Employment Index reading of 51.1 percent was an increase of 5 points, moving it into expansion territory for the first time since January.

Regarding employment, Business Survey Committee respondents’ comments “were flat,” Miller said. “There wasn’t a rush to rehire for vacated positions, but there wasn’t anything to suggest a rash of freezes or layoffs. (The sentiment) reflected a break-even month or a slight expansion of the index.”

The markets volatility on Monday silenced some of the recent chatter regarding how U.S. Federal Reserve policymakers will react to each piece of economic data. All signs continue to point to an interest rate cut in September.

“Interest rates will impact any business that has a significant amount of working capital or is investing in assets,” Miller said, “so any rate reduction would be welcomed.”

The Report On Business® roundup:

Bloomberg: U.S. Services Activity Expands at Modest Pace as Orders Rebound. “The gauge was boosted by rebounds in services employment, orders and business activity that suggest the largest part of the economy is growing at a modest pace. Reports last week showing a weakening labor market and a slump in manufacturing spurred recession concerns and battered global financial markets.”

Mace News: Services Sector Back in Growth in July After Unexpected Slip Back into Contraction in June. “Miller told reporters that the industries with significant working capital (Utilities), those sensitive to interest rates (Real Estate, Rental & Leasing) and with investment assets should benefit from an expected rate cut by the Federal Reserve. Some of the activity driving the utilities is AI (artificial intelligence) business, but if there is a pullback in AI, credit easing would support the utilities industry, he said.”

MarketWatch: Economy Still Growing, ISM Finds, in Counter to Fresh Recession Talk. “The services side of the economy has been a juggernaut since the pandemic ended, and while it’s still expanding, it’s showing more signs of stress. High interest rates have dampened consumer spending and business investment and service providers are also feeling the heat.”

Reuters: U.S. Service Sector Rebounds in July; Employment Also Recovers. “The report appeared to help lift U.S. stock market indexes from their early-morning lows, although the benchmark S&P 500 Index was more than 3 percent lower in the latest leg of a stock market sell-off that has mushroomed into a global equities rout. The S&P has dropped nearly 5 percent in the last two sessions, its biggest two-day loss in more than two years.”

In case you missed Thursday’s Report On Business® Roundup on the release of the July Manufacturing PMI®you can read it here. The Hospital PMI® will be released on Wednesday. For the most up-to-date content on the three indexes under the ISM® Report On Business® umbrella, use #ISMPMI on X, formerly known as Twitter.

(Photo credit: Getty Images/Vesnaandjic)

About the Author

Dan Zeiger

About the Author

Dan Zeiger is Senior Copy Editor/Writer for Inside Supply Management® magazine, covering topics, trends and issues relating to supply chain management.