Below-Forecast U.S. Services Index Shows Firms’ Optimism Easing

(Bloomberg) -- America's service industries expanded in July at the weakest pace in almost a year, indicating firms making up the biggest part of the economy tempered their optimism, a survey from the Institute for Supply Management showed Thursday.

Key Takeaways

The abrupt slowdown at service industries is at odds with ISM manufacturing data this week showing factory managers were more upbeat than their counterparts who represent almost 90 percent of the economy.

Nonetheless, slower growth at service providers such as retailers and builders may be more in line with a cooling in consumer demand and weaker construction data. While the U.S. economy continues to expand at a moderate pace amid steady job gains and low borrowing costs, retail sales have weakened and progress in the real-estate market has leveled off entering the third quarter.

Details of the ISM's services report showed measures of business activity, orders and employment declined in July. A gauge of inventory sentiment rose to an almost two-year high.

At the same time, the drop in sentiment could prove temporary. After the services index fell to 51.7 last August, it rebounded the following month and averaged 56.5 from September to June. One respondent in the company-management and support-services business cited a normal seasonal slowdown that should reverse over the next three months, according to ISM.

Fifteen industries reported growth in July while just two showed a contraction, and the majority of respondents' comments were positive about the economy and business conditions, ISM said in a statement.

Other Details

• Main index was below lowest estimate in Bloomberg survey, with forecasts ranging from 54.9 to 59
• Business activity gauge, which parallels the ISM's factory production index, fell to 55.9 from June's 60.8
• Order backlogs measure was little changed at 52 after 52.5
• Prices-paid index rose to 55.7 in July from 52.1
• Measure of inventory sentiment jumped to 67.5, the highest since August 2015, from 62; indicates more industries view their inventories as too high

To contact the reporter on this story: Patricia Laya in Washington at playa2@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle