Service Sector Activity Hits Record High in July

8/4/2021

Retail and Consumer

0 min read

Activity in the Service Industries Breaks Record

The U.S. services industry activity grew for the 14^th month in a row and reached a record high in July. The Institute for Supply Management (ISM Report) survey released on Wednesday (Aug. 4) also showed a rebound in employment last month within the services industry sector. Credit for the gains is given to the shift in spending from hard goods to services. This follows last year’s sharp loss of service-related economic activity; by this measure, the sector has since staged an almost complete rebound.

The Numbers

The Institute for Supply Management reported U.S. non-manufacturing activity hit 64.1 in July from a June level of 60.1. This is the highest level reported since it began releasing survey results in 2008. The output is designed to show growth or retrenchment in the sector. A reading above 50 indicates growth within the services sector; below 50 indicates a contraction. This index is important to market participants as services account for two-thirds of the U.S. economy. All industries surveyed in July reported growth. Nationally individuals allowed themselves more travel, restaurant visits, live casino gambling, sporting events, etc.. Demand for services grew. There is also an added bump from those returning to the office and relying more on the service sector for meals and other conveniences.

The numbers are in line with the second-quarter GDP report last week, which showed an acceleration in spending on services in the second quarter. Those figures were higher than the pre-covid fourth quarter 2019 GDP numbers.

The ISM survey’s measure of new orders received by services businesses increased to a reading of 63.7 from 62.1 in June. Further gains are likely in the months ahead, with inventories lean and inventory sentiment among customers poor. Businesses depleted inventories at a rapid pace in the second quarter. Stocks at retailers are well below normal levels.

Supply Constraints

The ISM report also indicates there are supply strains due to increasing demand (the survey doesn’t measure strains based on supply chain problems).
The ISM measures deliveries by suppliers which rose to 72.0 from a reading of 68.5 in June. A reading above 50 indicates slower deliveries. During the month, there were examples of businesses complaining about the scarcity of appliances, laptops, and rental cars. Replacement heating and air conditioning units experienced longer than normal lead times from order to delivery.

With bottlenecks in the supply chain persisting, a measure of prices paid by services industries surged to 82.3, the highest reading in nearly 16 years, from 79.5 in June.

New Hires

Services industries hired more workers in July, though labor shortages lingered, especially in the accommodation and food services sector. A measure of services industry employment rebounded to a reading of 53.8 from 49.3 in June.

Take-Away

The ISM Services Index measures growth and contraction in a sector that comprises two-thirds of the U.S. economy. The most recent report for July shows that activity is higher than ever reported. This bodes well for leisure, hospitality, education, consulting, etc.

Suggested Reading: