July data suggested that growth in the U.S. service sector remained muted, with activity rising at the weakest pace in the current five-month sequence of expansion. A slower increase in new business was also recorded. On a more positive note, the rate of job creation picked up slightly and business sentiment improved markedly from June’s record low. On the price front, slower increases were registered for both input costs and output prices during the month.
At 50.9 in July, the seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index was down from 51.4 in June and pointed to a slight expansion in activity. The latest increase was the weakest in the current five-month sequence of growth. While some panellists reported that activity had been raised in response to new orders, others mentioned that subdued economic conditions had dampened activity.
Anecdotal evidence regarding new business was similar to that seen for activity. Some respondents noted an upturn in client demand, but others suggested that a weak economic environment had made it more difficult to secure new work. New business rose at a modest rate during the month, after the pace of expansion weakened since June.
Nonetheless, growth of new work fed through to an increase in outstanding business in July, the first for a year. That said, the rate of accumulation was only marginal.
As part of efforts to deal with higher backlogs, but mainly as a result of new order growth, U.S. service providers increased their staffing levels. Moreover, the rate of job creation was solid and picked up to a three-month high.
Muted cost inflation was registered again in the latest survey period. In fact, the rate at which input prices rose was the slowest since January and weaker than the series average. A similar trend was recorded with respect to output prices, which increased marginally and at a slower pace than in June.
Business confidence rebounded to the highest since the start of the year in July, after having hit a record low in the previous month. Respondents noted business expansion plans and hopes for improving economic conditions. Some panellists expected that activity would pick up following the presidential election later this year.
Adjusted for seasonal influences, the Markit Flash U.S. Composite PMI Output Index registered 51.5 in July, rising from 51.2 in June and signalling a second successive acceleration in the rate of output growth. That said, the rate of expansion remained modest.
While the service sector saw activity rise at a weaker pace (‘flash’ index at 50.9 in July), manufacturers recorded a solid increase in production and one that was the strongest since November last year (‘flash’ index at 53.9 in July).