WASHINGTON: Growth of the dominant American services sector slowed sharply in July, but companies remained largely upbeat and attributed the sluggishness to typical summer doldrums, according to a survey released Thursday.
The report showed slowing in the key new orders and employment components, but still solid growth, even as prices were rising, the Institute for Supply Management said.
The monthly ISM non-manufacturing index fell 3.5 percentage points to 53.9 percent, which still indicates growth but at the slowest pace since August 2016.
The result was below the 54.9 percent seen in July 2016, and well below economists’ forecast for 56.9 percent.
That included a 4.9 point drop in business activity and a 5.4 point fall in new orders, while employment declined 2.2 points, but all still well-above the 50 percent threshold indicating expansion from the prior month.
ISM said 15 of the 18 industries surveyed reported growth in July compared to June, while only two reported contraction.
Anthony Nieves, chair of the ISM’s non-manufacturing survey committee, said there was some question whether the very strong growth in the last few months would be sustainable, but he said he was not concerned about the slowing.
“You have to look at it from a trend perspective,” he told reporters on a conference call.
While he had wondered if the sector might be “going into a pause,” Nieves said, “I don’t think so. There were too many positive comments.”
One company shrugged off the slowing as a “typical and expected midsummer slowdown in hiring activity by employers is causing a normal slowdown in business for this time of year.”
Another said this is a “quiet time of year for us, with focus on busy August through December peak season to come.”
The overall index captures activity among all segments of the services sector, the largest component of the US economy. A reading of more than 50 percent indicates expansion, and despite the modest slowdown the sector has been growing for 91 months.
Another notable component of the index was prices, which rose for the second straight month, increasing 3.6 percent, with 15 industries reporting paying higher prices for inputs, and only one reporting a decline.
Nieves previously has noted that companies lack pricing power, which has kept the index in check in recent months, but even with the increase in July he said he does not see signs of inflationary pressures since most of the uptick is concentrated in commodities.