Economic activity in the services sector expanded in July for the seventh consecutive month as the Services PMI® registered 52.7 percent, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The sector has grown in 37 of the last 38 months, with the lone contraction in December of last year.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In July, the Services PMI® registered 52.7 percent, 1.2 percentage points lower than June’s reading of 53.9 percent. The composite index indicated growth in July for the seventh consecutive month after a reading of 49.2 percent in December, which was the first contraction since June 2020 (45.4 percent). The Business Activity Index registered 57.1 percent, a 2.1-percentage point decrease compared to the reading of 59.2 percent in June. The New Orders Index expanded in July for the seventh consecutive month after contracting in December for the first time since May 2020; the figure of 55 percent is 0.5 percentage point lower than the June reading of 55.5 percent.

“The Supplier Deliveries Index registered 48.1 percent, 0.5 percentage point higher than the 47.6 percent recorded in June. In the last six months, the average reading of 47.6 percent (with a low of 45.8 percent in March) reflects the fastest supplier delivery performance since June 2009, when the index registered 46 percent. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index was up 2.7 percentage points in July, to 56.8 percent. The Inventories Index expanded in July for the third consecutive month, after one month of contraction preceded by two months of growth and eight months of contraction from June 2022 to January 2023; the reading of 50.4 percent is down 5.5 percentage points from June’s figure of 55.9 percent. The Inventory Sentiment Index (56.6 percent, up 2.6 percentage points from June’s reading of 54 percent) expanded for the third consecutive month after one month of contraction preceded by four months of growth, with a four-month period of contraction before that. The Backlog of Orders Index registered 52.1 percent, an 8.2-percentage point increase compared to the June figure of 43.9.

“Fourteen industries reported growth in July. The Services PMI®, by being above 50 percent for the seventh month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector. The composite index has indicated expansion for all but three of the previous 161 months.”

Nieves continues, “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.”

INDUSTRY PERFORMANCE

The 14 services industries reporting growth in July — listed in order — are: Other Services; Construction; Accommodation & Food Services; Public Administration; Management of Companies & Support Services; Transportation & Warehousing; Utilities; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Health Care & Social Assistance; Educational Services; Retail Trade; Information; and Wholesale Trade. The four industries reporting a decrease in the month of July are: Mining; Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; and Finance & Insurance.

WHAT RESPONDENTS ARE SAYING

- “Pricing in food sectors has come down incrementally, but in very small, almost minute percentages. IT labor pricing is still inflated.” [Accommodation & Food Services]
- “Sales have been steady.” [Construction] - “Continuing to see improved case volume in 2023, although July and summer months have flattened a bit as usual. Still scratching and clawing to find savings with economic inflationary pressures.” [Health Care & Social Assistance]
- “Business remains steady.” [Information]
- “We are maintaining a cautious approach, although inflation seems to be easing. The overall business environment has stabilized, but tight labor markets are creating ongoing issues.” [Management of Companies & Support Services]
- “Hiring of employees, temporary workers and consultants continues to be slow as companies remain cautious about increasing fixed and variable expenses during uncertain economic times.” [Professional, Scientific & Technical Services]
- “Although capacity in transportation services has improved, there are still some industries with lagging lead times for their products.” [Public Administration]
- “Overall economy is good. Supply chain market is stable. Commodity prices are increasing but at a slower rate. Lead times and deliveries are ideal, and inventories are lower than last quarter. The unemployment rate is at its lowest point in 70 years. Wages continue to grow.” [Retail Trade]
- “We are still having issues with getting certain materials based on chips, though not nearly as imposing as they were a year ago. Lead times from Europe and in general seem to be improving. There are challenges with suppliers who made changes during the pandemic to spread workloads — they are not as responsive, and this affects lead times.” [Transportation & Warehousing]
- “Steady, slower growth.” [Finance & Insurance]
- “High operational expenses continue to put pressure on the business and limit hiring. Supplier costs (are) not coming down as much as expected. Service levels from suppliers continue to improve. Trucking metrics improved.” [Wholesale Trade]