Rebounding to 51.4 in July 2024
- The topline ISM Services PMI posted a result of 51.4 in July 2024
- The Business Activity and New Orders components bounced back strongly in July 2024 from contractionary territory in June
- Employment regained breakeven status in July 2024 with an index reading of 51.1
- Services industry price pressures accelerated in July 2024, rising to 57.0
The ISM Services PMI report continued its volatility around the measure’s breakeven threshold with a reading of 51.4 in July 2024. The topline ISM Services index had dipped its toes into contractionary territory in two (2) of the prior four (4) months. Business Activity and New Orders rose strongly in July after both sub-indices fell into contraction in June. But those components’ rebounds both fell short of retaking their May 2024 levels. Price pressures remained a concern for service industry business in July 2024, and with concerns regarding overall U.S. economic health and the potential for the Fed to move aggressively on monetary policy through the remainder of the year, any and all persistent upstream inflationary pressures warrant renewed concerns.
The ISM Services index measures net activity among service industry businesses, with a reading of 50 implying an even split between those indicating expansionary and contractionary conditions. Averaging out the volatility seen around the breakeven threshold in recent months’ ISM Services PMI reports, the topline metric is still barely above breakeven at 50.96 since March 2024.
Business Activity in July 2024’s ISM Services PMI report regained a foothold in expansionary territory with a reading of 54.5 for the month. This result is up from 49.6 in June. The U.S. services sector’s Business Activity trend is nonetheless continuing the downward trend that began during the second half of 2023. The average Business Activity result from March through July of this year is 54.72, which compares with a 2023 mid-year peak of 59.2 (June 2023). Consumer confidence has fallen in four (4) of the Conference Board’s monthly readings since the start of this year and is well down from its July 2023 high. While July 2024’s Business Activity reading was a solid bounce-back versus the month prior, volatile readings tending towards contraction seem likely through the remainder of this year with confidence waning with respect to the U.S. economy’s stability.
Service industry cost pressures have not let up despite softening conditions across the U.S. economy. The ISM Services PMI Prices component came in at 57.0 for July 2024. The risk of inflation remaining above the Fed’s goal of an average of 2% has taken on greater significance in light of the Bureau of Labor Statistics’ weak Employment Situation report from Friday, August 2nd. If the Fed is forced by deteriorating labor market conditions – or bullied by overall financial market volatility – into cutting rates more aggressively than PNC’s forecast of two (2) 25 basis point cuts through the remainder of this year, the potential for lingering business cost pressures to reignite consumer price inflation gathers leverage. Despite still-high borrowing costs, Nonresidential Business Investment growth has accelerated in every quarter since 2023Q3, according to recently released GDP data from the Bureau of Economic Analysis. Lower rates incentivizing, or at least enabling, even stronger business investment in the year ahead raises real concerns about the path of inflation given the persistence of business cost pressures across the U.S. economy.
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