WASHINGTON, Aug 5 (Reuters) – The U.S. services sector maintained a strong pace of growth in July as an acceleration in new orders was offset by higher prices for inputs and a decline in employment.
The Institute for Supply Management said on Wednesday its nonmanufacturing purchasing managers index inched up to 54.1 last month from 54.0 in June. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity.
The survey’s measure of new orders received by services businesses jumped to 57.2 from 55.1 in June, likely related to ongoing front-loading as businesses try to avoid shortages and higher prices from the Middle East conflict. Strong orders would suggest that domestic demand retained its robust pace of growth early in the third quarter.
New orders were also boosted by strength in exports. Growth in backlog orders, however, slowed considerably. Strong domestic demand is pushing into supply constraints, with suppliers still taking too long to deliver inputs to businesses.
The survey’s measure of supplier deliveries slipped to 52.8 from 54.4. A reading above 50 indicates slower deliveries, which are contributing to higher prices for inputs.
The survey’s measure of prices paid by businesses for inputs increased to 70.3 from 67.7 in June. That would suggest inflation was set to pick up after slowing in June on the back of a retreat in energy prices when the ceasefire between the U.S. and Iran took hold.
Economists have warned that underlying inflation could remain elevated even if oil prices dropped because of an artificial intelligence spending boom.
The Federal Reserve last week left its benchmark overnight interest rate in the 3.50%-3.75% range. Three members of the U.S. central bank’s policy-setting committee dissented, preferring a quarter-percentage-point hike.
The survey’s employment sub index dropped to 47.4 from 51.2 in June. This gauge has contracted in four of the last five months and has not been a good predictor of services sector payrolls in the government’s closely watched employment report.
Economists continue to view the labor market as remaining in a “slow-hire, slow-fire” mode, which they say should allow the Fed to focus on inflation.
A Reuters survey of economists expected the government’s employment report on Friday to show nonfarm payrolls increased by 80,000 jobs in July after rising 57,000 in June. The unemployment rate is forecast holding steady at 4.2%.
There is, however, a risk the jobless rate could edge higher after a Conference Board survey last week showed the share of consumers viewing jobs as “plentiful” dropped in July to the lowest level since February 2021.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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