Service sector expanded in July despite rising virus cases

Wells Fargo Research Team Wells Fargo

Despite renewed outbreaks in July, the service sector woke up from hibernation with a huge share of businesses seeing a pick-up in activity, but service providers are not yet ready to bring back their full staff.

Stronger Than Expected

As virus case-counts rebounded in July, the reopening of the service economy continued largely undaunted. The service sector ISM rose to 58.1 in July. As we said in the manufacturing ISM write-up on Monday, keep in mind that these diffusion indexes are a measure of breadth rather than degree of strength; that can exaggerate reading around inflection points. Business activity at a 16 year high in July is a great example of this.

Open…With a Limited Staff

The employment component slipped further into contraction territory in July, coming in at 42.1. Service providers are not yet ready to call people back to work in large numbers.
In a separate release this morning, we learned the trade deficit narrowed in June as exports outpaced imports. The U.S. is a big exporter of services that may be facing some headwinds. Note that the exports component slipped into contraction in July.

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Wells Fargo Research Team

Wells Fargo

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