Manufacturing Recovers as Service Growth Slows

In July, business activity in the United States experienced a slower pace of growth, with manufacturing showing some signs of recovery while service growth decelerated. The S&P Global Flash Composite Output Index, which measures activity across both manufacturing and services sectors, fell to 52.0 in July from 53.2 in the previous month, indicating the slowest rate of expansion in five months.

Service Sector Performance

The flash U.S. services PMI dropped to 52.4 in July from 54.4 in the previous month. This figure missed economists' consensus forecast of 54.0, according to a survey by The Wall Street Journal. S&P Global noted that while export orders provided some support, domestic demand was hindered by higher interest rates.

Manufacturing Sector Performance

On the other hand, the flash U.S. manufacturing PMI increased to 49.0 in July from 46.3 in the previous month. This exceeded economists' expectations of 46.7 and marked the smallest decline in three months.

Service Sector Drives Growth

According to Chris Williamson, S&P Global's chief business economist, growth is primarily being driven by the service sector, specifically the rising spend from international clients. This growth is offsetting the stagnant manufacturing sector and the increasingly subdued demand from U.S. households and businesses.

Recent Weakness in Production Activity

The latest data from the Chicago Fed National Activity Index reveals a weakening of production activity in June. The Fed national activity index declined to minus 0.32, down from minus 0.28 in May.

Challenging Outlook for July

July presents a combination of slower economic growth, weaker job creation, gloomier business confidence, and sticky inflation, according to S&P's Williamson.

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