[News] Contrasting with Manufacturing, U.S. July Services PMI Rebounds into Expansion

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The Institute for Supply Management (ISM) released its July Services PMI report on August 6th, revealing that the Services PMI rose from 48.8 in the previous month to 51.6, surpassing market expectations of 51.0.

The expansion was driven by 10 industries, including leisure and hospitality, accommodation and food services, financial services, and healthcare.

Respondents indicated that sales figures and customer numbers were flat compared to the same period last year, with rising prices dampening consumer demand. On the other hand, eight sectors, including agriculture, real estate, retail, and information technology, experienced contraction. Respondents attributed this to the U.S. election, price pressures, and high interest rates impacting long-term purchasing decisions.

In the component indices, the Business Activity Index increased from 49.6 in the previous month to 54.5, with respondents generally seeing business activity as strong, though signs of future challenges remain.

The New Orders Index rose from 47.3 to 52.4, indicating improved demand. The Employment Index, closely watched by the market, rose from 46.1 to 51.1, marking its first expansion after five consecutive months of contraction. Respondents noted that companies are actively filling vacancies and training the workforce required for the future.

Overall, the performance of the services sector in July contrasts sharply with the stagnation in the manufacturing sector. On the other hand, similar to manufacturing, consumer spending remains constrained by price pressures, while the labor market continues to slow but has yet to show significant deterioration. According to data from Fed Watch, the market broadly expects the Federal Reserve to cut interest rates by 0.25% to 0.5% in September, with a total of three to four rate cuts anticipated throughout the year.