Service sector growth slows in July
NEW YORK (Dow Jones/AP) – The U.S. service sector continued to grow in July, although the rate of increase was somewhat weaker than the prior month, a report released Monday said. The non-manufacturing index for July of the Institute for Supply Management, formerly known as the National Association of Purchasing Management, moved to 53.1, after standing at 57.2 in June and 60.1 in May.
The non-manufacturing index is comprised mostly of services. Index readings above 50 indicate expansion of activity and prices in the sector, while readings under 50 denote contraction.
Economists had expected the ISM index to cool a bit from the prior month, but not as much as was reported. Forecasts centered on a 55.5 reading for July.
“The reported growth represents the sixth consecutive month of expansion in non-manufacturing business activity, but the second consecutive month of reduced rates of expansion,” said Ralph Kauffman, the survey’s director.
The ISM said that its index of service sector new orders showed growth there also cooled, with that gauge standing at 52.6 in July, versus 56.9 in June.
Coming on the heels of Friday’s fairly weak July payrolls report, the ISM survey’s jobs index indicated further weakness at 45.8, after 44.3 the prior month.
Meanwhile, the ISM price index indicated that price pressures are continuing to mount, even though inflation in the broader economy is almost nonexistent. The ISM prices index was 59.0, compared with 54.0 in June.
The ISM said that according to the survey, service sector businesses are “cautious” about the outlook into year’s end.
Although the non-manufacturing index came in below expectations and indicated a steady deceleration in the rate of expansion over the past three months, it looks relatively buoyant compared with other recent economic indicators.
Monday’s report comes after a week of economic data that was weak enough to raise among some economists and market participants the fear that the U.S. economy may well face a second slide into recession, having just barely emerged from the last.
Those fears were stoked by the ISM manufacturing index, which came in sharply weaker than expected at 50.5, and from the government’s release of second quarter gross domestic product data.
That report showed the economy growing a very modest 1.1 percent in during that period, while revisions to prior quarters’ data showed last year’s recession was deeper and longer than previously understood.
In response to the unexpected weakness, economists pushed back estimates yet again as to when the Federal Reserve will hike interest rates in response to a recovering economy. One bank, Goldman Sachs, said economic weakness was pronounced enough for them to expect the Fed to cut interest rates from the current level of 1.75 percent to 1.00 percent by year’s end.