U.S. services activity rises rapidly in July on stronger domestic demand, PMI index rises to 53

Service providers in the U.S. hinted at a strong beginning to the second half of 2019. The data for July has shown a more rapid rise in business activity, underpinned by stronger domestic and foreign client demand. The seasonally adjusted final IHS Markit U.S. Services Business Activity Index rose to 53 in July from June’s 51.5. The upturn in business activity was strong overall and the most rapid for three months. Service providers linked the rise to greater new business and rebounded client demand. However, the rate of growth was slower than that seen at the beginning of the year and below the series average.

Underpinning the acceleration in output growth was a stronger rise in new business. Service providers recorded the most rapid growth in new orders since March, with the pace of expansion accelerating for the second straight month. Foreign client demand also rebounded, with new business from abroad rising at the sharpest rate since February. The rise in new export orders was also faster than the series average.

Although client demand bolstered further from May’s recent low, service sector companies recorded another fall in business sentiment in July. The degree of optimism eased for the sixth straight month to a fresh series record low, reflecting increased economic uncertainty. Softer business sentiment was further seen in a further moderate rise in employment. In spite of a more rapid rise in business requirements, the pace of job creation was widely unchanged from those seen in the prior four months.

Moreover, service providers recorded further pressure on capacity as the level of outstanding business rose for the seventh straight month and at a stronger rate in July. The accumulation of backlogs was strong overall and the sharpest for four months. On the price front, output charges rose just slightly in July. Panellists stated that the pace of charge inflation was historically muted in the midst of promotional discounting to entice new customers.

The weak rise in output prices came alongside just a moderate rise in input costs. Where a rise was reported, companies linked this to increased purchase costs after temporary supplier shortages amidst unseasonable bad weather.

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