Solid growth in US services sector counters manufacturing gloom

US producer prices climb more than expected in June

The US services sector expanded faster than expected in August, as data showed a jump in new orders and business activity and helped quell concerns following figures this week that revealed the manufacturing sector’s first monthly contraction in three years.

The Institute for Supply Management’s non-manufacturing index jumped to 56.4 in July from 53.7 in July. That was well ahead of the median forecast among Wall Street analysts for a reading of 54, and above the 50 threshold that separates expansion from contraction for the 115th consecutive month.

All 16 non-manufacturing industries — ranging from retail trade, agriculture and healthcare to real estate, rental & leasing, among others — reported growth, and ISM said overall that respondents to its survey “remain concerned about tariffs and geopolitical uncertainty; however, they are mostly positive about business conditions”.

Most notably, sub-indices for business activity/production, new orders and inventories showed some of the largest increases, while there was a slower pace of growth in the employment and imports categories.

That contrasts activity in the US manufacturing sector, with ISM’s index for that dipping to 49.1 in August, marking its first move into contractionary territory in three years. That stirred investor concerns about a recession, given popular bond market indicators have been flashing strong signals about an impending economic slowdown.

One respondent from the accommodation & food services industry told ISM tariffs had resulted in it experiencing a 10 per cent increase in the price of imported Chinese ingredients from August 1. Another respondent from the professional, scientific & technical services sector said: “Summer doldrums appear to be over, and the fourth quarter will be solid, with higher-than-expected revenues.”

In the real estate, rental & leasing industry, one respondent told ISM “construction markets remain busy”, while one from the construction sector observed that “lower mortgage rates have not had a great effect on new residential construction sales” and “tariffs continue to apply upward cost pressures to current supply chains.”

Also providing some good news on Thursday morning, data from the Commerce Department showed factory orders grew 1.4 per cent month-on-month in July, up from a revised 0.5 per cent rise (previously 0.6 per cent) in June. That was comfortably ahead of the 1 per cent forecast among Wall Street analysts and also marked a second consecutive monthly rise.

A second reading for durable goods orders in July was revised lower by 0.1 percentage point to 2 per cent month-on-month.

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