US Service Industry Continues to Expand in July, but Employment and Inflation Pressures Raise Concerns

Zhi Tong Financial APP has learned that the latest "Service Industry PMI Report" released by the Institute for Supply Management (ISM) shows that the US service industry activity continued to grow in July, reflecting the resilience of the industry despite facing inflation and employment market pressures. The July Service PMI index recorded 50.1%, slightly down from June's 50.8% but still above the neutral line of 50%, indicating economic activity continues to expand. This is the 12th consecutive month that the service sector has been in an expansion zone.

According to Steve Miller, chairman of the ISM Service Commercial Research Committee, July's Service PMI dropped 0.7 percentage points but still showed slight growth. He noted that while business activity and new orders continued to grow, employment indices remained soft and prices rose rapidly, highlighting the challenges faced by the service industry. Specifically, the business activity index recorded 52.6%, down from June's 54.2% but still indicating overall business vitality, which has not contracted since May 2020.

The employment situation raised concerns, with the July employment index dropping to 46.4%, below June's 47.2% and marking the fourth time in five months that it had been in a contraction zone. This implies that service industry labor demands are declining or reflecting companies' cautious attitudes toward economic prospects.

In terms of supply chains, the supplier delivery index recorded 51%, slightly higher than June's 50.3%, marking the eighth consecutive month showing a delay in deliveries. Notably, this index is opposite to other indicators, with values above 50% indicating slower delivery times, which are often seen as signals for economic activity expansion and demand increases.

In terms of inflation pressure, the price index rose to 69.9%, up 2.4 percentage points from June's figure, its highest level since October 2022. This index has been above 60% for eight consecutive months, indicating that companies are facing higher input costs universally.

It is worth noting that the order backlog index recorded 44.3%, slightly improved from last month but still in a contraction zone for the fifth consecutive month. Additionally, export and import indices both shifted from expansion to contraction, with exports declining by 3.2 percentage points and imports plummeting by 5.8 percentage points, reflecting the negative impact of tariff tensions on international trade.

From an industry perspective, 11 service industries reported growth in July, up one from June. The strongest-performing industries were transportation and warehousing, wholesale trade, finance and insurance, retail trade, other services, enterprise management and support services, public administration, real estate and rental services, information industries, public utilities, and healthcare and social assistance. At the same time, seven industries reported contraction, including accommodation and food services, construction, mining, education services, agriculture, forestry, fishing, and hunting, arts entertainment and leisure, and professional scientific and technical services.

Miller noted that while the overall PMI index still showed expansion, the growth momentum has slowed significantly. Some respondents mentioned that seasonal factors and weather changes had a negative impact on their business, and transportation congestion also intensified supply chain pressure, which contributed to the supplier delivery index rising. He also pointed out that the most frequently discussed topic is tariff issues, with more goods prices emerging, further exacerbating company cost burdens.