U.S. services-sector activity accelerated in July, helped in part by spending around the FIFA World Cup and the Independence Day holiday, while manufacturing growth eased to the slowest pace since March as precautionary stock building slowed amid the U.S.-Israeli-led war with Iran.
Who Gets the Bill
S&P Global’s flash services Purchasing Managers’ Index rose to 53.6, the highest since November, from 51.2 in June. Its Composite Output Index climbed to 53.6, also an eight-month high, from 51.9 last month. The manufacturing PMI slipped to 53.8 from 53.9 in June. Readings above 50 indicate expansion. The numbers look tidy enough from the top floor. Down below, they still point to a system where growth depends on war shocks, holiday spending, and the next round of price pressure.
Economists polled by Reuters had expected the services PMI to rise to 51.5 and the manufacturing PMI to increase to 54.3. Chris Williamson, chief business economist at S&P Global Market Intelligence, said, “U.S. businesses reported a good start to the third quarter,” and said the data were consistent with gross domestic product expanding at a 2.0% pace so far in the July-September period. He said the government will deliver its first estimate of second-quarter GDP next week, and a preliminary sample of economists polled by Reuters sees growth holding steady at 2.0%, roughly on par with the first-quarter pace of 2.1%.
What the Numbers Hide
New services business grew at the fastest pace since November, while new order growth for factory goods slipped to a four-month low. Employment expanded modestly in both sectors. That’s the familiar arrangement: activity rises, but only unevenly, and only enough to keep the machine moving. The people doing the work get “modest” gains while the institutions count expansion and call it stability.
Williamson said, “Some of this improvement may prove short-lived as July saw hospitality spend boosted by the FIFA World Cup and USA 250 anniversary activities.” He added, “It was also worrying – though not unexpected – to see manufacturing growth weaken as some of the stock building seen in prior months showed signs of fading. Instead, July saw a concerning intensification of supply chain delays and accompanying renewed upturn in price pressures, constraining growth and subduing demand.”
Those are the costs of a system built on managed scarcity and fragile supply lines. When the stockpiling slows, the delays bite. When prices rise, demand gets “subdued.” The language stays polite. The pressure doesn’t.
The War Economy Comes Home
Williamson said the recent resumption of air strikes against and by Iran had again shut down traffic in the critical Strait of Hormuz, pushing global benchmark oil prices back near $100 a barrel from around $70 at the start of July, and lifting average U.S. gasoline prices back above $4 a gallon. That’s the hierarchy in plain sight: decisions and violence at the top, higher fuel costs and tighter supply chains for everyone else.
Williamson said, “Events over recent days in the Middle East will have only further exacerbated these supply chain and price worries and raise downside risks to the near-term outlook for the economy, hinting that July’s upturn may not be the start of an improving trend.” The forecast is dressed up as caution, but the structure is blunt. War interrupts trade. Trade disruptions raise prices. Prices squeeze ordinary people. The apparatus calls it an outlook.
The government’s first estimate of second-quarter GDP is due next week, and Reuters’ preliminary sample of economists sees growth holding steady at 2.0%, roughly on par with the first-quarter pace of 2.1%. That’s the official scoreboard. It measures motion, not whether people can afford the fuel, the food, or the rent that follows every “upturn.”