US services PMI tops forecasts in July, but economists cautious

Activity in America's services sector accelerated by much more than expected, led by a pick up in output and new orders, especially in new export orders.

The Institute for Supply Management's manufacturing sector Purchasing Managers' Index jumped from a reading of 60.1 for June to 64.1 in July (consensus: 60.4).

Pacing increases among the various subindices, that tracking levels of output jumped from 60.4 to 67.0, while another linked to new orders improved from 62.1 to 63.7.

A sub-index for new export orders meanwhile surged from a reading of 50.7 for June to 65.8.

The key sub-index for prices paid also rose, from 79.5 to 82.3, as did that for employment, from 49.3 to 53.8. - with the latter a potentially positive signal ahead of Friday's monthly non-farm payrolls report.

Going the other way, the main decline was observed in the sub-index for imports, which dropped from 58.2 to 51.6.

Commenting on the latest survey results, Andrew Hunter, senior US economist at Capital Economics, said: "At face value, a weighted average of the ISM manufacturing and services indices is now consistent with GDP growth accelerating to about 8% annualised in the third quarter, double the pace we had pencilled in.

"[...] With the press release also including numerous references to worsening labour and materials shortages, that suggests to us that growth is unlikely to be nearly as strong as the headline ISM indices imply. At the same time, the further rise in the services prices paid index, to its highest level since 2005, is consistent with headline CPI inflation rising even further."