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Economy in Brief

U.S. ISM Services PMI Improves in July
by Tom Moeller  August 5, 2020

• Service sector activity is at highest level since February 2019.

• Component activity is mixed.

• Pricing power improves.

The Composite Index of Services Activity from the Institute for Supply Management increased to 58.1 during July after strengthening to 57.1 in June. A reading of 55.0 had been expected in the Action Economics Forecast Survey.

Haver Analytics constructs a composite index combining the Services index and the manufacturing reading which was released on Monday. The composite index improved to 57.7, the highest level since February 2019. During the last 15 years, there has been a 48% correlation between the index level and the q/q change in real GDP. The composite is based on GDP shares.

Changes in the component series were mixed last month. The index of business activity improved to 67.2 after surging to 66.0 in June. It was the second consecutive reading above the break-even level of 50 after three months below it. A slightly reduced 43% of respondents (NSA) of respondents reported improved activity while a lessened 15% reported deterioration. The new orders index strengthened to 67.7, a record high. To the downside, the employment figure eased to 42.1, down versus a three-month high of 43.1 reached in June. An improved 18% of respondents reported more hiring, offset by a greatly increased 31% reporting fewer jobs. The supplier delivery series posted a decline to 55.2 (NSA), down sharply during the last three months, as delivery speeds quickened.

The prices index weakened to 57.6 from June's high of 62.4. A greatly lessened 22% of respondents reported higher prices, the least since March, while a fewer six percent reported prices lower. The percentage reporting no change in prices rose sharply to 73%.

The export orders series declined to 49.3 and reversed roughly half of June's increase, while the imports index also fell sharply to 46.3. The order backlogs index rose significantly to the highest level since June 2019. These series are not seasonally adjusted and are not included in the nonmanufacturing composite.

The ISM figures are available in Haver's USECON database, with additional detail in the SURVEYS database. The expectations figure from Action Economics is in the AS1REPNA database.

ISM Services Survey (SA) Jul Jun May Jul'19 2019 2018 2017
Services PMI 58.1 57.1 45.4 54.8 55.5 59.0 56.9
   Business Activity 67.2 66.0 41.0 56.8 58.0 61.7 60.2
   New Orders 67.7 61.6 41.9 55.3 57.5 61.4 59.3
   Employment 42.1 43.1 31.8 55.7 54.9 56.9 55.1
   Supplier Deliveries (NSA) 55.2 57.5 67.0 51.5 51.5 55.8 53.2
Prices Index 57.6 62.4 55.6 57.0 57.6 62.1 57.7
ISM Manufacturing and Services Composite 57.7 56.6 45.1 54.4 55.0 59.0 57.0
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