Services PMI sees gains in July, reports ISM

Services economy activity saw growth in July, according to the most recent edition of the of the Services ISM Report on Business, which was issued today by the Institute for Supply Management (ISM).

The Services PMI came in at 56.5 (a reading of 50 or higher signals growth), up 1.4% compared to June, following a slight 0.6% decrease from May to June. The Services PMI showed growth, at a faster rate, for the 26th consecutive month, with services sector growth now remaining intact for 148 of the last 150 months through June, said ISM.

The June Services PMI is 3.5% below the 12-month average of 60.2, with November 2021’s 68.4 and June’s 55.3 marking the high and low readings over that period, respectively. What’s more, the June reading represents the lowest one since February 2021, which came in at 55.9.

ISM reported that 13 of the services sectors it tracks saw annual gains in July, including: Mining; Real Estate, Rental & Leasing; Public Administration; Management of Companies & Support Services; Construction; Educational Services; Other Services; Utilities; Professional, Scientific & Technical Services; Health Care & Social Assistance; Transportation & Warehousing; Wholesale Trade; and Information. The three industries with July declines were: Agriculture, Forestry, Fishing & Hunting; Retail Trade; and Finance & Insurance.

The report’s equally weighted subindexes that directly factor into the NMI were mixed in July, including:

-Business activity/production, at 59.9, rose 3.8%, growing, at a faster rate, for the 26th consecutive month, with 13 services sectors reporting growth;
-New orders, at 59.9, rose 4.3%, growing, at a faster rate, for the 26th consecutive month, with 11 services sectors reporting growth, following two months of contraction, which were preceded by 128 months of growth;
-Employment, at 49.1, increased 1.7%, contracting, at a slower rate, for the second straight month, which was preceded by seven straight months of growth; and
-Supplier deliveries, at 57.8 (a reading above 50 percent indicates slower deliveries), down 4.1 compared to June May and slowing, at a faster rate, for the 38th consecutive month

Comments from ISM member respondents included in the report highlighted various issues being seen in the services sector, including: slowing economic activity and inflation, among others.

A Management of Companies & Support Services respondent said she can feel the economy weakening, with clients making appropriate moves in anticipation of a recession. And a Utilities respondent observed that business is holding steady, adding that some headwinds are definitely ahead on the economic front, while supply chain issues appear to be easing, but are still not great.

Tony Nieves, Chair of the ISM’s Services Business Survey Committee, noted in the report that the slight increase in services sector growth was due to an increase in business activity and new orders.

In a previous interview, Nieves said that declines in the Services PMI, from March through June, serve as a barometer of how much pent-up demand there was from consumers, for services economy activities, out of 2021 and the first half of 2022.

“Things were continually opening up over that period,” he said. “The thing we are experiencing right now is that we are getting a little bit of a decline in consumer confidence, with inflation, issues we are having with materials shortages, some pullback in real estate and rental prices coming down a little bit. Hopefully, fuel prices will come down more, too. But because of the inflation eating into consumer spending…people are spending money on other things. It is not necessarily tangible goods like it was in the past, but more so they are dining out still and spending money on experiences. It is not all gloom and doom.”