US Service Sector Records 7 Months of Expansion, But July's Momentum Slows Down

Economic activity in the U.S. private services sector maintained its expansion in July, but at a reduced rate compared to previous months, according to surveys released Thursday by S&P Global and the Institute of Supply Management (ISM).

The Services PMI measured by S&P was revised by 0.1 percentage points down to 52.30 points in July, indicating a slowdown from the 54.40 points recorded in June 2023.

Similarly, the ISM Services PMI declined from 53.9 in June to 52.7 in July, falling below the expected 53.

These figures suggest a moderation in the growth pace of the services sector during July.

ISM Services PMI for July: Key Takeaways

• “There has been a slight pullback in the rate of growth for the services sector. This is due mostly to the decrease in the rate of growth for business activity, new orders and employment, as well as ongoing faster delivery times. The majority of respondents are cautiously optimistic about business conditions and the overall economy,” said Anthony Nieves, chair of the ISM Services Business Survey Committee.
  
• It’s the seventh consecutive month of expansion for the service sector. The July reading is broadly in line with the six-month average, and slightly above the 12-month average (52.5).
  
• In July, all subindices in the U.S. private services sector showed readings above 50, indicating an expansion, with the exception of supplier deliveries, which registered 48.1. It’s worth noting the pace of expansion slowed down across all subindices, except for prices paid and inventory sentiment, which continued to grow at a relatively faster rate.

Market Reactions: Rising Yields Keep Stocks Under Pressure

Investors haven’t materially shifted their interest rate expectations in response to the data, assigning a 17% probability of a Fed rate hike in September.

Still, rising Treasury yields continue to weigh on the broad risk sentiment on Thursday.

The 10-year Treasury yield gained 9 basis point to 4.17%, the highest since early November 2022. Similarly, the 30-year Treasury yield soared by 10 basis point to 4.28%.

The S&P 500 index opened the session on a weaker note and the SPDR S&P 500 ETF Trust SPY was down 0.3% at the time of writing.

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