U.S. service sector’s business activity stabilizes in July, PMI index rises to 50

U.S. service sector’s business activity sees some stabilization as businesses continued to reopen. The seasonally adjusted final IHS Markit US services PMI index came in at 50 in July, rising from June’s 47.9. The latest data brought to an end a five-month sequence of contraction, with the business activity index rising for the third straight month. Although some companies remained closed or noted soft client demand and disrupted working practices because of the pandemic, others stated that the resumption of business had stimulated output.

On the contrary, new business continued to fall in July. Service providers saw a marginal rate of fall which was slightly greater than seen in June. The fall in new order inflows was often attributed to customer hesitancy and social distancing measures stemming from the COVID-19 pandemic. Meanwhile, foreign client demand weakened after a fractional growth in June. New export orders were widely unchanged as companies continued to note difficulties attracting sales because of the pandemic.

Input costs at service providers rose for the second straight month in July, with the inflation rate accelerating to the sharpest since October 2018. The rise in cost burdens was associated with supplier price hikes, with some underlining greater costs for sanitizing and PPE products especially.

Service providers saw the first rise in employment since February in July, as pressure on capacity due to COVID-19 restrictions on business processes causing delays to the handling of order books. Although only marginal, the growth in payroll figures hinted at a turnaround from the marked contractions seen in April and May.

Business sentiment rebounded in July to the strongest since March 2019. Expectations were buoyed by hopes of a relaxation in lockdown measures and a return to pre-pandemic business practices in the next 12 months.