Economic Activity in Services Sector Declines Slightly
Economic activity within the services sector saw a modest decline in July. Businesses appeared hesitant to make new purchases due to ongoing policy uncertainties.
The Purchasing Manager Index, from the Supply Management Institute, decreased by 0.7% from June, landing at a level of 50.1% for July.
According to Institute Chair Steve Miller, this report indicates “slow growth” across various service industries, including transportation, warehousing, retail, utilities, and real estate.
Many survey respondents pointed to delays in their ability to plan or make purchases, citing business conditions as the main concern. Customs duties were particularly highlighted in multiple comments.
One respondent from the Food Services sector expressed, “Hoping for the ultimate tariff impact is delaying planning for purchases for the next fiscal year.”
Although other indices from the survey showed declines, they remained within previous ranges. The Business Activity Index dropped by 1.6 percentage points to 52.6%, while the new order index slipped by 1 percentage point to 50.3%.
Tariffs have been affecting business sentiment for several months now, and their impact is becoming visible in economic data as companies work through their inventory. These duties are set to kick in next April, typically taking about three months for U.S. stock to be fully cleared.
The CEO of the Business Roundtable noted “downward changes in plans and expectations” for the upcoming six months, pointing to persistent “uncertainty.” The survey indicated a reduction in employment plans by 19 percentage points, alongside a 15 percentage point drop in capital investment.
Recent reports from the Labor Bureau revealed that the economy has added only 106,000 jobs since May. Experts suggest that the economy needs to generate between 80,000 and 100,000 new jobs each month to adequately replace those who retire or leave for other reasons.
Meanwhile, prices are starting to climb as businesses adapt to increased costs, impacting consumers. The Personal Consumption Expenditure Price Index rose by 2.6% annually in July, while the Consumer Price Index increased by 2.7%.
One respondent from the warehouse sector remarked on the rising pricing effects, stating, “Taxes are beginning to appear in pricing and are on a full rise.”
Finally, the U.S. trade deficit decreased to $60.2 billion in June, according to the Commerce Department. Imports of goods fell by $12.6 billion to reach $265.0 billion, while exports also declined by $1.2 billion to $179.1 billion.
