Economic activity in the U.S. services industry rose to a three-month high in July in an unexpected rebound despite ongoing labor shortages and supply chain woes.
The Institute for Supply Management's latest non-manufacturing services purchasing manager's index (PMI) registered 56.7 last month, up 1.4% from 55.3 in June. The latest reading is the highest since April's services PMI of 57.1.
Any reading above 50% generally indicates growth in the sector, which has expanded every month since contracting in the spring of 2020 during the throes of the COVID-19 pandemic.
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Economists polled by Reuters had expected the index to drop for the fourth consecutive time in July to 53.5.
ISM's survey showed that 13 industries reported growth last month, including real estate, mining, public administration, health care and social assistance sectors.
"The slight increase in services sector growth was due to an increase in business activity and new orders," said Anthony Nieves, who leads the survey. "Availability issues with overland trucking, a restricted labor pool, various material shortages and inflation continue to be impediments for the services sector."
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Despite the overall climb for the services sector in July, the agriculture, retail and finance industries reported declines. In addition to those three areas, the accommodation and food services industry reported a reduction in business activity for the month.
"Restaurant sales have softened the past few weeks [due to] post-holiday and seasonality factors, but we’re also hearing because of consumer pressures, particularly fuel and food prices," one respondent told ISM. "Staffing remains a challenge in some markets."
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Nieves noted, "The Employment Index (49.1 percent) contracted for the second consecutive month, and the Backlog of Orders Index decreased 2.2 percentage points, to 58.3 percent."
