The US service sector

The July ISM services index was little changed at 54.1 vs 54 in June and just below the estimate of 54.5. The business activity component though gained another 3.7 pts to 59.1.

Of note after the ADP report and ahead of Friday payrolls, the employment component fell back below 50 at 47.4 from 51.2.

New orders lifted to 57.2 vs 55.1 but just back to its 6 month average of 57.1. ISM said comments from respondents include: “Beginning of new fiscal year — budgets in place and various large dollar projects (renovations) to complete this summer before the fall semester begins” and “World Cup.” Backlogs dropped 4 pts to 50.9 and below its 6 month average of 53.3. Inventories were little changed at 51.4 and 3.5 pts below its 6 month average as maybe the post conflict lift is slowing down.

Supplier deliveries calmed, down 1.6 pts (lower number means improved supply chain) but not all smooth. From ISM, they said comments from respondents include: “Some smaller suppliers are starting to be stressed financially, causing delays in shipments, missed shipments and other issues; we are spending more time monitoring and managing these small but important suppliers to our business” and “Lead times are doubling on specific electrical conductor.”