The Economy

Service Sector Activity Increases 1.6% in July

Latest data from Markit show a rebound from June's five-month low but positive economic sentiment fell for the second month in a row.
Matthew HellerAugust 5, 2015
Service Sector Activity Increases 1.6% in July

Economic activity in the U.S. service sector rebounded in July from a five-month low, but service providers’ confidence about the year ahead dipped to its lowest level since June 2012, the Markit research firm reported Wednesday.

The Markit U.S. Services Business Activity Index rose 1.6% in July to 55.7, remaining above the neutral 50.0 threshold for the twenty-first consecutive month. The survey showed the biggest increase in new business volumes since April and a solid upturn for payrolls.

But the rate of activity growth in the service sector was the second-slowest since January and the growth rate for both manufacturing and services, as measured by the Markit U.S. Composite PMI Output Index, was fractionally weaker than that recorded on average in the second quarter of 2015.

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Markit Chief Economist Chris Williamson said the data augur well for an interest rate hike later this year, possibly as early as next month, but “there are causes for concern which could worry policymakers into deferring any tightening of policy.”

The survey indicated that service providers remain upbeat about their prospects for business activity over the next 12 months, with more than one-third (35%) expecting an increase and only 4% forecasting a reduction. But the overall degree of positive sentiment dipped for the second month running and was the lowest since June 2012.

“Growth has clearly slowed compared to this time last year, and a further drop in service sector companies’ optimism about the year ahead to one of the lowest seen over the past five years indicates that firms are expecting growth to slip further in coming months,” Williamson said.

In another survey of service providers released Wednesday, the Institute for Supply Management had a somewhat more bullish outlook, reporting that its non-manufacturing purchasing managers index rose 4.3% to 60.3 in July. Forecasters surveyed by The Wall Street Journal had expected last month’s PMI to inch ahead to 56.1.

The majority of respondents “continue to have a positive outlook on business conditions and the overall economy,” said Anthony Nieves, chair of the ISM’s non-manufacturing business survey committee.

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