U.S. business activity contracted for the first time in nearly two years in July. As a sharp slowdown in the service sector outweighed continued modest growth in manufacturing; painting a glum picture for an economy stunted by high inflation, rising interest rates and deteriorating consumer confidence.
S&P Global said its preliminary – or “flash” – U.S. Composite PMI Output Index had tumbled far more than expected to 47.5 this month. With a reading below 50 indicating business activity had contracted. July’s fall marked the fourth monthly drop in a row and was largely driven by pronounced weakness; in the services sector index, which fell to the lowest since May 2020 at 47.0 from 52.7 a month earlier. That was enough to offset relative steadiness in manufacturing.
S&P Global’s measures of new orders in the manufacturing sector, outstanding business in the services sector; and future expectations in both fell to levels not seen since the first year of the pandemic. Citigroup’s U.S. Economic Surprise Index last month registered its lowest reading since May 2020 and has remained negative so far in July.
The S&P Global data point to U.S. gross domestic product falling at roughly a 1% annualized rate, Williamson said. The economy contracted at a 1.6% rate in the first quarter, largely because of business inventory management issues, and the government next week will provide its first reading of output in the second quarter, which some models suggest will show a second straight contraction.
The Labor Department reported that new claims for jobless benefits rose to the highest since November. The total number of people drawing unemployment assistance had risen to the highest since April. That said, both remain below historic norms.