The US service sector continued to expand in July, but concerns arose over employment and inflation pressure.

The latest Service Purchasing Managers Index (PMI) report released by the Institute for Supply Management (ISM) in the United States shows that the U.S. service sector activity has achieved growth for the second consecutive month in July, reflecting resilience in the industry despite facing inflation and labor market pressures. The July service sector PMI recorded 50.1%, slightly lower than June's 50.8%, but still above the 50% threshold, indicating continued expansion of economic activity. This marks the twelfth time in the past 13 months that the sector has been in the expansion zone. Steve Miller, Chair of the ISM Services Business Survey Committee, stated that the service sector PMI in July decreased by 0.7 percentage points, but still shows slight expansion. He noted that while business activity and new orders continue to grow, the persistently weak employment index and rapid rise in the price index highlight the challenges currently faced by the service sector. Specifically, the business activity index for July recorded 52.6%, down from 54.2% in June, but still indicating overall business activity remains active, as it has not contracted since May 2020. The new orders index decreased from 51.3% in June to 50.3% in July, showing slower growth but still in the expansion zone. The performance in employment is concerning, with the employment index dropping to 46.4% in July, not only lower than 47.2% in June, but also marking the fourth time in the past five months that the index has been in the contraction zone. This suggests a decrease in labor demand in the service sector, or reflects caution among businesses regarding economic outlook. In terms of the supply chain, the supplier delivery index recorded 51%, slightly higher than 50.3% in June, showing supply delays for the eighth consecutive month. It is worth noting that this index, unlike others, indicates that a value above 50% represents slower delivery times, usually seen as a signal of strengthening economic activity and increasing demand. Regarding inflation pressure, the price index rose to 69.9%, up 2.4 percentage points from June, reaching the highest level since October 2022. This index has been above 60% for eight consecutive months, indicating that businesses are facing higher input costs. Meanwhile, the inventory index was 51.8%, lower than 52.7% in June, but still in the expansion zone; the inventory sentiment index dropped from 57.1% to 53.2%, indicating a slight decrease in satisfaction with current inventory levels. It is worth noting that the backlogs of orders index recorded 44.3% in July, showing improvement from the previous month but still in the fifth consecutive month of contraction. Additionally, both the export and import indices shifted from expansion to contraction, with exports decreasing by 3.2 percentage points and imports plummeting by 5.8 percentage points, reflecting the negative impact of tariff tensions on international trade. In terms of industry performance, 11 service industries achieved growth in July, one more than in June. The strongest performing industries were transportation and warehousing, wholesale trade, finance and insurance, retail trade, other services, management and support services, public administration, real estate and leasing services, information industry, utilities, and healthcare and social assistance. Meanwhile, seven industries reported contraction, including accommodation and food services, construction, mining, education services, agriculture, forestry, fishing and hunting, arts, entertainment, and recreation, and professional, scientific, and technical services. Miller pointed out that although the overall PMI index still shows expansion, the growth momentum is clearly slowing down. Some surveyed companies mentioned that seasonal factors and weather changes have had a negative impact on business, and transportation congestion has exacerbated supply chain pressures, contributing to the increase in the supplier delivery index. He also mentioned that the most commonly raised issue is still tariff-related, noting that recent price increases for goods are further increasing the burden on businesses.