Key facts
- The U.S. services sector grew in July, with the ISM Services PMI rising to 54.1.
- New orders for U.S. services businesses accelerated in July, reaching 57.2.
- Prices paid for inputs by U.S. services businesses increased to 70.3.
- The employment sub-index for the U.S. services sector declined to 47.4.
- The UK services sector returned to growth in July, with its PMI rising to 52.1.
- Euro zone business activity reached an eight-month high in July, driven by services.
The U.S. services sector maintained a strong pace of growth in July, with the Institute for Supply Management's nonmanufacturing purchasing managers index rising to 54.1 from 54.0 in June. A reading above 50 indicates growth. The acceleration in new orders, which jumped to 57.2 from 55.1, was likely influenced by businesses attempting to avoid shortages and higher prices stemming from the Middle East conflict. Strong domestic demand is pushing against supply constraints, leading to slower supplier deliveries and higher input prices, which increased to 70.3 from 67.7.
However, the employment sub-index for the services sector dropped to 47.4 from 51.2, contracting for the fourth time in five months. Economists view the labor market as remaining in a 'slow-hire, slow-fire' mode, which they believe allows the Federal Reserve to focus on inflation. The Fed recently left its benchmark interest rate unchanged, though three policy-setting members dissented, preferring a hike.
In parallel, the UK services sector returned to growth in July, with its Purchasing Managers' Index (PMI) rising to 52.1 from 48.8 in June. New orders increased for the first time since February, and business confidence reached its highest level since February. Input cost and prices charged inflation eased in the UK services sector.
Meanwhile, Euro zone business activity reached an eight-month high in July, driven by services, which expanded to a five-month high of 51.7. Overall new orders saw their fastest growth since November, employment stabilized, and business confidence rose. Euro zone inflation edged up to 2.9% in July, increasing the likelihood of further European Central Bank interest rate hikes.