Service Sector Expands in July: Business, New Orders, and Employment Indexes Increase in Tempe, Ariz., Aug. 5, 2024 The ISM Services report reported a significant expansion in the services sector in July. The services PMI came in at 51.4 percent, marking the 47th expansion in 50 months. Conditions improved 2.6 percentage points from the previous month, with the reading at 48.8 in June.
The business activity index crossed the halfway mark at 54.5 percent in July, up 4.9 percentage points from June, as the sector returned to expansion after a month of contraction. The new orders index also rose to 52.4 percent, up 5.1 percentage points from the previous month but the fourth-lowest reading since the start of the pandemic. Additionally, the employment index rose for the second time this year to 51.1 percent, up 5 percentage points from June’s reading of 46.1 percent.
New Indicators Show Challenges, Improvement in Services Sector in July: In Tempe, Ariz., on August 5, 2024, data from the latest ISM services report showed notable improvements in several key indicators in July. The supplier delivery index came in at 47.6 percent, down 4.6 percentage points from 52.2 percent in June, indicating faster supplier delivery performance after two months in “slower” territory.
The price index rose to 57 percent in July, up 0.7 percentage points from June, reflecting higher costs for materials and services. The inventories index shrank for the second straight month to 49.8 percent, up 6.9 percentage points from June, indicating inventory drawdowns to meet current challenges. Inventory sentiment index falls
Stock sentiment index down
In other indicators, the inventory sentiment index fell to 63.2%, down 0.9 percentage points, reflecting continued optimism about the future among warehouse managers. Meanwhile, the backlog of orders index returned to expansion territory for the fifth time in 2024, rising to 50.6% in July, up 6.6 percentage points from June, reflecting a rebound in new orders after a period of decline.
These indicators reflect the challenges facing the services sector as the overall expansion in economic activity continues, reflecting the varying effects of current challenges on the economy. Ten industries reported growth in July. The services PMI has expanded in 17 of the past 19 months since January 2023, and the July reading is just 0.9 percentage points below the average of 52.3 percent over that time period. The PMI has not contracted for two consecutive months since April and May 2020, another indicator of sustained growth in the sector.”
Miller continues the analysis, explaining: “The increase in the composite index in July reflects a moderate 5 percentage point increase in the business activity, new orders and employment indicators, while the supplier deliveries index fell by 4.6 percentage points, returning to contraction territory after two months in the “slower” zone. This development reflects respondents’ discussions about rising costs and the potential impact of the upcoming presidential election, with one respondent expressing concern about potential tariff increases. While industries remain mixed in their performance, the 10 industries that saw growth in July—including arts, entertainment and recreation, accommodation and food services, mining, construction, and others—recorded a clear recovery in performance, while the eight industries that saw declines—such as agriculture, trade, and professional services—saw additional challenges during the month.”
The following commodity prices recorded an increase during the period:
Aluminum (+3), Construction Contractors (+7), Beef, Food, Fuel and Labor (+44), Labor – Construction Labor – Technology (+3), Natural Gas Products Some of these commodities have been in short supply, impacting availability and prices in the market. In July, the Services PMI came in at 51.4%, up 2.6 percentage points from 48.8% in June. This reading, which is above the 50% mark, indicates that the overall service sector economy continues to expand.
The rise in the Services PMI is boosting hopes for a continued recovery in the overall economy. According to Steve Miller, this increase in the index is a positive sign for economic growth, with a 0.8 percentage point increase in real GDP year-on-year, based on the historical relationship between the Services PMI and overall economic performance.
Therefore, the rise in the Services PMI in July is an increasingly positive sign that overall economic conditions are continuing to improve. In July, the ISM business activity index registered 54.5 percent, up 4.9 percentage points from the 49.6 percent reading in June. This increase brought the index back into expansion territory after being in contraction territory the previous month, for the first time since May 2020. This increase reflects the marked improvement in economic and business performance during July.
Over the past 50 months, the business activity index has been in expansion territory for 49 months, highlighting the strength of the stability and recovery in the economy since the start of the pandemic. Among the industries that recorded an increase in business activity in July, arts, entertainment and recreation led the way, followed by accommodation and food services, construction, business management and support services, finance and insurance, and information.
The new orders index recorded
In contrast, agriculture, forestry, fishing and hunting, wholesale trade, and professional, scientific and technical services recorded a decline in business activity for July, indicating divergent performance across sectors during this period.
Respondents’ comments noted that “seasonality” and “business activity remains good,” but they expressed some challenges ahead that could impact the economy, reflecting increased caution in light of market developments and potential economic policies.
The Institute for Supply Management (ISM®) New Orders Index registered 52.4% in July, up 5.1 percentage points from the 47.3% reading in June. The index returned to expansion after contracting in June for only the second time since May 2020. Respondent comments included: “There are many projects in the queue” and “Additional data center projects are being tendered.”
The 10 industries that reported an increase in new orders for July—listed in order—are: Arts, entertainment, and recreation; Mining; Accommodation and food services; Construction; Public administration; Corporate management and support services; Finance and insurance; Transportation and warehousing; Utilities; and Educational services. The six industries that reported a decrease in new orders for July—listed in order—are: Agriculture, forestry, fishing, and hunting; Real estate, leasing, and rental; Information; Wholesale trade; Professional, scientific and technical services; health care and social assistance.
