data released by IHS Markit on Friday revealed that U.S. private sector
business activity continued to expand strongly during July, albeit at a softer
pace than in June.
According to the report, the Markit flash manufacturing purchasing manager's index (PMI) came in at 63.1 in July, up from 62.1 in May. The latest reading pointed to a record expansion in factory activity. Economists had expected the reading to decrease to 62.0. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. The growth in the headline index was supported by a quicker rise in new orders across the manufacturing sector, as new and existing customers ramped up their spending. Production grew at a slightly quicker pace despite further reports of material shortages. The pace of job creation accelerated to the sharpest for three months. On the price front, cost burdens saw the fastest rise on record amid stronger demand for inputs globally and a scarcity of materials. Subsequently, the rate of charge inflation accelerated to a fresh series high.
The Markit flash services purchasing manager's index (PMI) dropped to 59.8 in July, down from 64.6 in the previous month. This was the lowest reading since February. Economists had expected the reading to increase to 64.8. Contributing to the weaker expansion of business activity was a slower upturn in new business across the service sector in July. The pace of expansion was the least marked for five months, as some firms noted customer hesitancy amid noticeable increases in selling prices. Similarly, the rate of advance in new export orders eased. Although firms recorded a solid rise in employment, the level of outstanding business grew further in July as service providers struggled to keep up with incoming new business.
Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 59.7 in July, down from 63.7 in June. This was the lowest reading since March.
“The provisional PMI data for July point to the pace of economic growth slowing for a second successive month, though importantly this cooling has followed an unprecedented growth spurt in May,” noted Chris Williamson, Chief Business Economist at HIS Markit. “Some moderation of service sector growth in particular was always on the cards after the initial reopening of the economy, and importantly we’re now seeing nicely-balanced strong growth across both manufacturing and services."
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