Rebound in US services extends into second month, ISM says

Services sector activity in the US outpaced economists' forecast in July, extending its recovery into a second month, the results of a closely-followed survey revealed.

Employment in the sector - by far the largest in the US economy - remained in the doldrums nevertheless, although some top-ranked economists spied reasons for optimism.

The Institute for Supply Management's headline Purchasing Managers' Index edged up from a June reading of 57.1 to 58.1 for last month.

Economists had anticipated a dip to 55.0.

A key sub-index of new orders saw the biggest increase, from 61.6 to 67.7, while supplier delivery times and inventory levels fell back alongside.

New export orders and imports were both lower nevertheless, with the subindices tracking them falling from 58.9 to 49.3 and from 52.9 to 46.3, respectively.

Price pressures also eased, with the sub-index tied to them slipping from 62.4 to 57.6.

"The orders index tells us that activity is rising, but the upturn is from such a low base that businesses don’t need to hire more people to meet demand," said Ian Shepherdson at Pantheon Macroeconomics.

"We hope this will begin to change with the gradual re-reopening in the South and West, which likely will start towards the end of this month, but a full return to normal conditions in the non-manufacturing sector, which is heavily reliant on discretionary consumption spending, won’t come until there’s a vaccine."

Several responses from survey participants appeared to be positive, with sales in Construction labelled as "strong" by one purchasing manager and the outlook in Management and Support Services as "overall positive, but cautious" by another.

In Utilities, business and orders were said to have already returned to pre-pandemic levels.

Meanwhile in Professional, Scientific and Technical Services on the other hand, they were unsure whether a pick-up in some business was a trend or nor, nor even if it was profitable.

In Real Estate, Rental and Leasing, Covid-19 interruptions had changed how business was conducted and in Educational Services they still did not know if students would come back at full capacity.