The expansion in the US manufacturing and services sectors continues, but the pace is beginning to slow down.

The IHS Markit US flash PMIs for July showed a mixed data set with Manufacturing continuing to accelerate expansion, whilst Services has seen a slowing in the expansion.

  • Flash Manufacturing PMI increased to 63.2 (from 62.1 in June) and beat forecasts of
  • Flash Services PMI fell to 59.8 (from 64.6 in June) which was a big miss on the expected improvement to 64.8.

This dragged the Composite PMI down to 59.7 (from 63.7 in June) which was the lowest since February. 

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The rate of expansion is described by IHS Markit as being robust, however, this is the second consecutive month where the rate of growth has eased. Composite PMI is taken to be a lead indicator for US GDP and this may slightly temper expectations for Q3 growth, albeit still looking strong.

After a huge growth spurt in May as the economy bounced back after earlier year lockdowns, this easing of expansion is not unexpected. Furthermore, there is a balance to the segments of the economy.

One big takeaway from the survey is that inflationary pressures are still significant, with prices of raw materials (input prices) and wage costs (to entice workers to reduce backlogs of work) are impacting business.


Initial Market Reaction

There seems to be something for everyone in this report, hence the mixed market reaction. Economic growth remains strong but is moderating after a blowout performance in May. Yields falling have been USD positive and this continues to be the case.

  • EUR/USD c. -5 pips 
  • 10 year Bund yield c. -1 basis point
  • S&P 500 futures choppy but around flat.