Source: Economics Group of Wells Fargo Bank, N.A.
Summary
At a moment when global financial markets are selling off over concerns that the U.S. economy could be on thin ice, the ISM services index is a reminder that service-sector activity remains robust. The ISM Services Index rose back into expansion at 51.4 in July.
Service-Sector Resilience Intact?
Whereas last Friday’s jobs report pointed to an economy that could be slipping into recession, today’s report shows the opposite. The headline index, the business activity index and four sub-components (new orders, order backlogs, employment and imports) all moved from contraction into expansion territory. In short: service sector activity regained its footing in July.
To some extent, it was not the weakness in last Friday’s jobs report that was so surprising as much as it was the strength in hiring reported in the prior months. That is tough to square with the fact that the employment component of the ISM services index was below 50 for the five straight months leading into July. At first pass the employment component of the ISM looks out of step with the moderation evident in total hiring on Friday—the ISM services employment component did rebound in July to 51.1, or the highest reading since September.