PMI Composite Report Signals Solid Growth For Economy

The PMIs, at a composite 55.9 for July, are signaling another month of solid growth for the U.S. economy with services steady at 56.2 and manufacturing accelerating slightly to 55.5.

Incoming orders for the service sector are described as turning sharply higher with business activity said to be "robust". Incoming orders for manufacturing are also described as "robust" with both production and employment in this sample posting solid upturns. Strength in manufacturing orders is centered in the domestic economy with export sales posting their largest drop in two years. Delivery times are the slowest in 11 years with manufacturers seeking to build up inventories due to scarcities.

Cost pressures for both sectors are the highest in five years and are described as "intense" with pass through to customers the highest in nine years. The report attributes the rise in costs to energy prices, rising salaries, and rising raw materials prices especially for metals. Hiring, however, is slowing, to its lowest rate of the year due in part to scarcity of skilled labor.

High costs and tight labor conditions are of course consistent with unusual strength in demand, underscored by optimism for the year ahead which is above last year's very strong trend.