Despite Service Sector Expansion, US Job Market Cools...Private Employment Up 44,000 in July (Comprehensive)

ISM Service Sector Employment Index Turns to 47.4

Service Sector PMI Remains in Expansion...Price Pressures Intensify

The U.S. service sector continued to expand in July, but clear signs of a slowdown appeared in the labor market. The increase in private sector employment was well below market expectations, and the service sector employment index returned to contraction within one month.

On August 5 (local time), according to U.S. employment data provider Automatic Data Processing (ADP), private sector employment in the United States rose by 44,000 in July, compared to the previous month. This figure falls short of half of June's increase of 95,000 and is also significantly lower than the market forecast of 75,000.

Service Sector Expansion Persists in July... Employment Contracts Again

A worker is stocking products at a mart located in New York. New York (USA) - Photo by Yoonju Hwang, Special Correspondent

The service sector itself maintained its expansionary trend. The Institute for Supply Management (ISM) reported that the July Services Purchasing Managers' Index (PMI) was 54.1, up 0.1 points from June's 54.0. However, this figure fell short of the market forecast of 54.5.

The PMI uses 50 as the threshold to distinguish between economic expansion and contraction. A reading above 50 indicates expansion. The July ISM Services PMI was 0.7 points higher than the 12-month average of 53.4. The U.S. service sector has now been in an expansion phase for 25 consecutive months, and the overall economy has maintained growth for 74 consecutive months.

Among the detailed indices, business activity and new orders improved. The business activity index rose by 3.7 points from the previous month to 59.1, while the new orders index rose by 2.1 points to 57.2.

In contrast, the employment index fell 3.8 points from 51.2 to 47.4, moving back into contraction territory after just one month. While the service sector continues to expand, this suggests that companies are becoming more cautious when it comes to new hiring.

Price pressures have also increased. The price index rose by 2.6 points from the previous month to 70.3. Recent oil price hikes and rising input costs are analyzed as key factors behind the stickiness of service sector prices moving downward.

The inventory index rose by 0.2 points from the previous month to 51.4. In July, business conditions improved across 13 industries, including retail, transportation and warehousing, wholesale trade, and finance and insurance.

Steve Miller, ISM services survey chairman, commented, "Respondents continued to mention the impact of tariffs and the Middle East conflict, but the frequency was much lower than in prior reports." He added, "The World Cup was mentioned again in relation to increases in business activity and new orders." He went on to say, "The U.S. service economy is overall exhibiting continued resilience, but concerns over mortgage rates and inflation remain, and recent oil price increases are at the center of pricing pressures."

S&P Global: Stronger-Than-Expected Expansion in July

Other surveys found the U.S. service sector performing stronger than expected. The S&P Global final reading for the July U.S. Services PMI came in at 54.6, above the market forecast of 53.6.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said, "With the July final PMI coming in stronger than the flash estimate, it points to a reassuring acceleration in economic growth at the start of the third quarter."

He analyzed that the latest PMI indicates U.S. gross domestic product (GDP) is growing at a pace of about 2.3% annualized at the start of the third quarter, following 1.5% annualized growth in the second quarter. He added that business optimism about future conditions has risen to its highest level since November of last year.

In summary, combining the ADP and ISM indicators, the service sector—core to the U.S. economy—continues its expansion trend, but companies' willingness to increase hiring appears to be weakening. Economic activity and new orders remain solid, but employment is slowing and price pressures are rising again.

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