Service Sector Reports Show Conflicting Information

Slow growth is the verdict of Markit's U.S. service sample whose composite index came in only slightly above breakeven 50, at 51.4 for final July which is unchanged from June and up 5 tenths from the July flash. Growth in new orders is, however, a major negative for July with a bounce back for employment, which hit a deep low in June, a standout positive. Another positive, one especially for employment, is an uptick in the year-ahead outlook. Inflation data are once again subdued.

...meanwhile...

Conditions, especially for orders, remain very strong for the ISM's non-manufacturing sample. The report's composite index did slip 1.0 point to 55.5 which is slightly below expectations but new orders rose in the month, up 4 tenths to 60.3 for the best showing since October last year. The bulk of the decline in the composite is due to a 3 point drop in delivery times which, in a signal of easing constraints in the supply chain, slowed only slightly in the month.

The other negative factor for the composite is a noticeable dip in employment, down 1.3 points to a very soft 51.4. This reading, in contrast to other advance indications, is not pointing to much strength for Friday's employment report. But other readings are very positive including business activity at 59.3, export orders at 55.5, and total backlog orders at 51.0 for a 4.5 point gain.

The order strength in this report points to early third-quarter acceleration for the bulk of the U.S. economy.

Recent History Of This Indicator:
The ISM non-manufacturing index has been signaling solid strength for the economy all year and another month of strength is expected for July where the consensus is calling for 56.0. New orders were very strong in June, at 59.9, which points to July strength for production and perhaps employment as well. The employment index for June was only 52.7 but it was up 3 full points in what did signal strength for what turned out to be an outstanding monthly employment report.