US service sector growth slows to weakest since August 2016
Growth in the all-important US services sector slowed to its weakest level in nearly three years in July, adding to the run of soft economic data that have raised concerns over the outlook for the world’s most important economy.
The Institute for Supply Management on Monday said its non-manufacturing index came in at 53.1 last month, the weakest pace since August 2016. That is down from 55.1 in June and confounded expectations for a slight rise to 55.5.
The slowdown takes the gauge closer to the 50 mark that separates expansion from contraction. The last time the index fell below the 50 level was in December 2009, during the global financial crisis.
“The non-manufacturing sector’s rate of growth continued to cool off. Respondents indicated ongoing concerns related to tariffs and employment resources,” said the report.
The services sector, which includes professional services, healthcare and other non-manufacturing industries, makes up about 80 per cent of US gross domestic product.
The report comes after another ISM survey last week showed US manufacturing activity grew at its weakest pace in nearly three years and underscores how the strains from America’s trade war with China is taking its toll on business confidence and investment.
“On a quarterly average basis, the ISM non-manufacturing index has trending lower, consistent with decelerating real GDP growth. However, the June and July results by themselves points to an even sharper slowdown in economic growth,” said Joshua Shapiro, chief US economist at MFR.
Hopes for progress over US-China trade talks were dashed last week after President Donald Trump announced plans to push ahead with a 10 per cent tariff on $300bn of Chinese goods. China vowed to retaliate and on Monday allowed the renminbi to weaken below a key threshold level, signalling a willingness to use its currency as a weapon against the US.
The escalation in tension between the two countries triggered a sharp sell-off in global stocks and sent investors scrambling for the safety of haven assets such as Treasuries. It also clouded the outlook for US interest rates this year, with investors now betting Federal Reserve policymakers would have to aggressively cut rates over the next 12 months to contain the fallout from the trade dispute even as chairman Jay Powell signalled the rate cut in July did not mark the start of a lengthy easing cycle.