U.S. Service Sector Index Jumps To All-Time High In July

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Growth in U.S. service sector activity accelerated by much more than anticipated in the month of July, according to a report released by the Institute for Supply Management on Wednesday.

The ISM said its services PMI jumped to an all-time high of 64.1 in July after pulling back to 60.1 in June, with a reading above 50 indicating growth in the sector. Economists had expected the index to inch up to 60.4.

The bigger than expected increase by the headline index came as the business activity index surged up to 67.0 in July from 60.4 in June.

The new orders index also climbed to 63.7 in July from 62.1 in June, while the employment index rebounded to 53.8 in July from 49.3 in June.

"The Employment Index reflected growth, even though the constrained labor pool continues to be an issue," said Anthony Nieves, Chair of the ISM Services Business Survey Committee.

Nieves also noted materials shortages, inflation and logistics continue to negatively impact the continuity of supply, with the supplier deliveries index jumping to 72.0 in July from 68.5 in June. A reading of above 50 percent indicates slower deliveries.

The ISM said the prices index climbed to 82.3 in July from 79.5 in June, reaching its second-highest reading ever, behind September 2005.

"While the Delta variant casts a dark cloud over the outlook, we still expect services to continue recovering in H2 2021," said Oren Klachkin, Lead US Economist at Oxford Economics. "Reopenings, higher vaccination rates, and pandemic fatigue will keep demand for services on a positive track."

"But operating capacity will remain Covid constrained, and supply side challenges will ease only gradually," he added. "We believe the services recovery would be derailed only if a severe spike in Covid cases forces public officials to reinstitute harsh containment measures."

On Monday, the ISM released a separate report showing an unexpected slowdown in the pace of growth in U.S. manufacturing activity in the month of July.

The manufacturing PMI dipped to 59.5 in July from 60.6 in June. While a reading above 50 still indicates growth in the manufacturing sector, economists had expected the index to inch up to 60.9.

With the unexpected decrease, the manufacturing PMI pulled back further off the 37-year high of 64.7 reached in March and fell to its lowest level since hitting 58.7 in January.

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