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ISM chart and excerpts below by permission from the Institute for Supply Management® ISM® 

Please consider the July 2023 Services ISM^® Report On Business^® emphasis mine.

In July, the Services PMI^® registered 52.7 percent, a 1.2-percentage point decrease compared to the June reading of 53.9 percent. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates it is generally contracting.

A Services PMI® above 49.9 percent, over time, generally indicates an expansion of the overall economy. Therefore, the July Services PMI^® indicates the overall economy is growing for the seventh consecutive month after one month of contraction in December. Nieves says, “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for July (52.7 percent) corresponds to a 1-percent increase in real gross domestic product (GDP) on an annualized basis.”

Employment activity in the services sector grew in July for the second consecutive month after contracting in May, with three consecutive months of growth before that. The Employment Index registered 50.7 percent, down 2.4 percentage points from the June figure of 53.1 percent. Comments from respondents include: “Not replacing turnover on production teams; matching capacity to lower demand” and “Have a need but cannot recruit fast enough.” Also: “We are hiring but also losing employees to other firms that offer higher compensation.”

The 10 industries reporting an increase in employment in July — listed in order — are: Arts, Entertainment & Recreation; Construction; Other Services; Accommodation & Food Services; Public Administration; Utilities; Retail Trade; Health Care & Social Assistance; Professional, Scientific & Technical Services; and Wholesale Trade. The five industries reporting a decrease in employment in July are: Finance & Insurance; Educational Services; Mining; Management of Companies & Support Services; and Information.

Prices paid by services organizations for materials and services increased in July for the 74th consecutive month. The Prices Index registered 56.8 percent, 2.7 percentage points higher than the 54.1 percent recorded in June, to indicate movement away from equilibrium: The July reading is the 13th in a row near or below 70 percent (with five straight months below 60 percent), following 10 straight months of readings near or above 80 percent.

Diffusion Index Comments

The ISM is a diffusion index, signaling direction not amount. For example a firm hiring 10 workers and a firm laying off 200 workers balances out.

And there is a survival bias and a weighting bias.

Manufacturing ISM Declines 9 Straight Months, New Orders Down 11 Months

It’s a tale of two economies, goods vs services as Manufacturing ISM Declines 9 Straight Months, New Orders Down 11 Months

We have not seen an economy anything like this one for something like forever.

Also see What Do Federal Tax Receipts and Total Receipts Suggest About Recession?

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