Retail led gains in the services sector in the July Services Purchasing Managers’ Index from the Institute for Supply Management, as overall economic activity in the sector rose slightly.
The Services PMI registered 54.1%, up 0.1 percentage point from June and marking its 25th consecutive month in expansion territory. The break-even point between expansion and contraction is 50%.
On the manufacturing side, economic activity expanded for the seventh consecutive month, with the Manufacturing PMI reaching 55.6%, up 2.3 percentage points from June.
Based on input from supply chain executives, Steve Miller, chair of the ISM services business survey committee, said, “The Business Activity Index remained in expansion territory in July, increasing 3.7 percentage points to 59.1% from June’s reading of 55.4%. The New Orders Index registered 57.2%, 2.1 percentage points above June’s figure of 55.1%. The Employment Index returned to contraction territory after only one month of expansion, with a reading of 47.4%, a 3.8-percentage-point decrease from the 51.2% recorded in June. The Supplier Deliveries Index registered 52.8%, 1.6 percentage points lower than the 54.4% recorded in June. This is the 20th consecutive month that the index has been in expansion territory, indicating slower supplier delivery performance.”
Supplier Deliveries is the only ISM PMI index that is inverted, as a reading above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
“The Prices Index registered above 70% for the fourth time in five months,” Miller said. “The reading of 70.3% in July is 2.6 percentage points above June’s figure of 67.7%. The index has exceeded 60% for 20 straight months and increased its 12-month average by 0.1 percentage point to 68.1%, its highest since April 2023.”
The Inventories Index registered 51.4%, up 0.2 percentage points from June, while the Inventory Sentiment Index came in at 52.5%, down 0.1 point. The Backlog of Orders Index remained in expansion territory for a sixth straight month, falling four points to 50.9%. New Export Orders registered 52%, up 1.6 points from June, while the Imports Index returned to expansion territory at 51.8%, up 2.4 points from June.
Miller added that the July Services PMI reading of 54.1% is 0.7 percentage point higher than the 12-month average of 53.4%. The 12-month average increased for the seventh straight month, up 0.3 percentage points from June’s average of 53.1%.
“In July, however, the number of commodities reported as down in price increased to six, up from three the previous month. Petroleum-related products and plastics were again reported as commodities up in price. Transformers are no longer reported as a commodity in short supply, but have been added to the list of those up in price,” he said.
The Employment Index, which came in at 47.4%, “dropped below its 12-month average of 48.7% by 1.3 percentage points and is at its lowest level since March. This index has now been below 50% for 12 of the last 18 months. However, the Business Activity Index had its second-highest reading since hitting 60.5% in May 2024, and the New Orders Index had its fifth-highest reading in that time period.”
The Supplier Deliveries Index continued easing, with eight commodities listed as in short supply, down one from June.
“Technical labor and memory components continue to have supply challenges, and some respondents mentioned such tactics as extending ordering windows to accommodate longer lead times for other difficult-to-get commodities,” Miller said. “Copper and aluminum moved from those listed as up in price to down in price.”
Tariffs continue to affect the services sector, although respondents mentioned their impact less frequently than in previous reports.
“Tariff impacts and the Middle East conflict continued to be mentioned by respondents, but much less frequently than in prior reports. The World Cup was again cited in the comments as a driver of increased business activity and new orders. Overall, the U.S. services economy continues to be resilient. Concerns still exist regarding mortgage and inflation rates, and we are still in the midst of pricing impacts due to the recent run-up in petroleum costs,” Miller said.
Retail industries reporting growth in July were: Retail Trade; Transportation & Warehousing; Wholesale Trade; Management of Companies & Support Services; Information; Construction; Accommodation & Food Services; Public Administration; Utilities; Educational Services; Mining; Professional, Scientific & Technical Services; and Finance & Insurance. The four industries that reported contraction in July were Agriculture, Forestry, Fishing & Hunting; Other Services; Health Care & Social Assistance; and Real Estate, Rental & Leasing.
The manufacturing industries reporting growth in July were: Printing & Related Support Activities; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Primary Metals; Nonmetallic Mineral Products; Transportation Equipment; Miscellaneous Manufacturing; Textile Mills; Machinery; Computer & Electronic Products; Food, Beverage & Tobacco Products; Wood Products; Plastics & Rubber Products; Furniture & Related Products; and Fabricated Metal Products. The only industry demonstrating contraction was Chemical Products.
