U.S. ISM Services Survey points to sustained strong economic growth

U.S. ISM Services Survey points to sustained strong economic growth

*The ISM services survey bounced to 64.1 in July from 60.1 in June, well above market consensus (Chart 1) and the price index soared to an all-time high. The fifth consecutive 60+ reading of the services index, a historical record, belies concerns about a faltering pace of economic growth, and signaled continued strength, while the sky-high price index is consistent with anecdotal evidence and ongoing inflation pressures.

*Remember, the ISM surveys measure purchasing managers’ responses on business conditions compared to the prior month, so the month-after-month 60+ readings add up to real economic strength. This is particularly important since the services sectors constitute the largest share of economic activity and jobs.

*All four components contributed positively to the ISM services composite index: business activity jumped to 67.0 from 60.4; new orders rose to 63.7 from 62.1 (Chart 2); and employment rose to 53.8 from 49.3. The fourth component, supplier deliveries, rose to 72.0 from 68.5, the second highest in history behind only April 2020, indicating sizable delays in production and delivery of services.

*The ISM services price index jumped to 82.3 from 79.5 (Chart 3). Such an acceleration of price increases in services contrasts with its historical pattern of gradual but fairly stable price increases, and is particularly striking, with services activities and employment lagging in the recovery.

*The ISM composite index, a GDP-weighted composite of the ISM manufacturing and services surveys, rose to 63.6 from 60.2 in June, near the all-time high of 63.8 reading in March 2021 (Chart 4). The composite has been above 60 for five (5) consecutive months, again a record. This very high composite reflects the jump in the services index and the slight dip (to 59.5 from 60.6) in the manufacturing index that was weighed down by supply bottlenecks.

Chart 1: ISM Services Survey

Chart 2: ISM Services – New Orders

Chart 3: ISM Services – Price Index

Chart 4: ISM Composite Index

Mickey Levy, mickey.levy@berenberg-us.com

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