U.S. services sector activity hits 16-month high in July

Spread of coronavirus disease (COVID-19) in New York City

WASHINGTON (Reuters) – The U.S. services sector activity gained momentum in July as new orders jumped to a record high, but hiring declined, supporting views that the labor market recovery was faltering amid a resurgence in new COVID-19 infections across the country.

The Institute for Supply Management (ISM) said on Wednesday its non-manufacturing activity index increased to a reading of 58.1 last month, the highest since March 2019, from 57.1 in June. The index slumped to 41.8 in April, which was the lowest reading since March 2009.

A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index increasing to a reading of 55 in July.

The report followed the ISM’s manufacturing survey on Monday showing factory activity racing to a 16-month high in July. The upbeat ISM surveys are, however, at odds with high frequency data such as weekly applications for unemployment benefits that have suggested the economic recovery that started in May, with the reopening of businesses, was slowing.

Coronavirus cases have sky-rocketed, especially in the densely populated South and West regions where authorities in hard-hit areas are closing businesses again and pausing reopenings. Claims for jobless benefits have risen for two straight weeks. At least 30.2 million Americans were receiving unemployment checks in early July.

The ISM survey’s measure of new orders for the services industry soared to a record 67.7 in July from a reading of 61.6 in June. There was a rise in order backlogs, but exports orders contracted.

The survey’s index of services industry employment fell to a reading of 42.1 last month from 43.1 in June. Last month’s decline in services industry employment is in tandem with the recent rise in applications of jobless benefits.

It also bolsters economists’ expectations for a pull back in employment growth in July. According to a Reuters survey of economists, nonfarm payrolls likely increased by 1.6 million jobs last month after a record 4.8 million in June.

The Labor Department is scheduled to release its closely watched employment report for July on Friday.

(Reporting By Lucia Mutikani; Editing by Chris Reese)