WASHINGTON (Reuters) – The U.S. services industry unexpectedly picked up in July amid strong order growth, while supply bottlenecks and price pressures eased, supporting views that the economy was not in recession despite output slumping in the first half of the year.
The Institute for Supply Management said its non-manufacturing PMI rebounded to a reading of 56.7 last month from 55.3 in June. The increase ended three straight monthly declines.
Economists polled by Reuters had forecast the non-manufacturing PMI decreasing to 53.5. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.
The surprise rebound followed on the heels of the ISM’s manufacturing survey on Monday showing factory activity slowing moderately last month. It was in stark contrast with the S&P Global survey showing the services sector shrinking in July.
The government reported last week that the economy contracted 1.3% in the January-June period.
Wild swings in inventories and the trade deficit tied to snarled global supply chains have been largely to blame. Overall economic momentum has, however, cooled as the Federal Reserve aggressively tightens monetary policy to fight inflation.
Services activity is being supported by a shift in spending from goods. The ISM’s measure of new orders received by services businesses shot up to 59.9 from 55.6 in June. Businesses reported a rise in exports.
Its services industry employment gauge improved to 49.1 from 47.4 in June, which was the lowest reading since July 2020.
Though demand for workers in industries like construction, wholesale and retail trade is easing, labor remains in short supply. The government reported on Tuesday that there were 10.7 million job openings at the end of June, with 1.8 openings for every unemployed person.
The ISM survey’s measure of supplier deliveries fell to 58.3 from 61.9 in June, helping to slow the pace of increase in services inflation. A gauge of prices paid by services industries for inputs dropped to 72.3, the lowest reading since February 2021, from 80.1 in June.
(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama)
