S&P Global released July preliminary purchasing managers' index (PMI) data on July 24 (local time), showing US service sector activity expanded to an 8-month high of 53.6 while manufacturing sector activity slowed to a 4-month low of 53.8. The service PMI rose 2.4 points from June's 51.2, while manufacturing PMI fell 0.1 points from the prior month. The divergence reflects stronger new order inflows in services offsetting weaker manufacturing demand, with both sectors facing intensified price pressures from supply chain disruptions and geopolitical factors.
Service Sector PMI Reaches 8-Month High at 53.6
The July service sector PMI of 53.6 exceeded market expectations of 51.5, marking the highest reading in 8 months. Business activity in the service sector accelerated amid stronger new order inflows. However, exports of goods and services continued to decline in July. PMI readings above 50 indicate economic expansion, while readings below 50 signal contraction.
Manufacturing PMI Declines to 53.8
The manufacturing sector PMI fell to 53.8 in July, below the market expectation of 54.3 and representing the slowest growth in 4 months. New orders in manufacturing recorded their most moderate increase since March, indicating weakening growth momentum in the sector.
Input Cost Inflation Hits 14-Month Peak
Price pressures intensified across both sectors in July. Input cost inflation reached its highest level in 14 months, with service sector cost increases also hitting a 14-month peak. S&P Global identified rising energy and transportation prices, tariffs, broad-based supplier price increases, and shipping delays from ongoing Middle East conflicts as cost drivers. These input cost increases translated into higher selling prices, with overall output price inflation rising to its highest level since August 2022.
S&P Global Economist Highlights Employment Recovery and Risks
Chris Williamson, Chief Economist at S&P Global Market Intelligence, stated that "this month saw an encouraging return to hiring by companies, with employment rising for the first time in three months." However, he noted that "some of this improvement may prove short-lived given that hospitality spending has been boosted by the FIFA World Cup and US 250th anniversary celebrations, while the weakening of manufacturing growth is a concern as signs emerge that the inventory building seen in prior months is fading." Williamson added that "instead, growth was constrained in July by supply chain delays and price pressures intensifying again, which also dampened demand," and warned that "recent Middle East developments exacerbate supply chain and price concerns, raising downside risks to the near-term economic outlook."
Composite PMI Rises to 53.6
The July composite PMI output index, combining service and manufacturing sectors, reached 53.6, up 1.7 points from June's 51.9. This represents the highest composite reading in 8 months.
FAQ
What does a PMI reading of 53.6 indicate for the US service sector?
A PMI reading of 53.6 indicates economic expansion in the service sector, as any reading above 50 signals growth. The July service sector PMI of 53.6 represents the highest level of expansion in 8 months, driven by stronger new order inflows.
Why did input costs reach a 14-month high in July?
Input costs reached a 14-month high due to rising energy and transportation prices, tariffs, broad-based supplier price increases, and shipping delays caused by ongoing Middle East conflicts, according to S&P Global's analysis.
