Activity across the U.S. service rose at the slowest pace in five months, though firms across the sector signaled that the slowdown would be temporary and stepped up hiring in anticipation of better business.
Markit Economics’ flash services purchasing managers index registered at 50.9 this month, down from 51.4 in June. Economists surveyed by The Wall Street Journal expected the gauge to edge up to 52.0. Flash readings reflect about 85% of the responses that go into the final reading.
While the decline was unexpected and marks the slowest rate of growth since March, the index still points to expansion, with a reading above 50.
Markit’s report on the service sector is a snapshot of domestic demand, measuring the health of restaurants and bars to dry cleaners and salons. Home to most American jobs, the sector has been offsetting a smaller but much softer manufacturing sector. In recent months, the rate of expansion has been slowing as uncertainty over the economy and the 2016 election has given some consumers and businesses pause.
In July, many service providers reported a modest uptick in new business, though some firms said subdued economic conditions had dampened activity. Businesses suggested they think the most recent slowdown in activity is fleeting, with sentiment picking up and hitting a year high after dipping in June, Markit said.
Underpinning expectations for a pickup in the months ahead, service-sector companies added jobs at the best level in three months. Respondents noted business expansion plans and hopes for improving economic conditions, Markit said, adding that some panelists expected that activity would pick up following the presidential election later this year.
“The U.S. service sector remained stuck in a low gear at the start of the third quarter,” said Andrew Harker, senior economist at Markit, but “more encouraging was the rebound in business confidence following June’s survey low, suggesting that a return to stronger growth will be possible once the current soft patch comes to an end.”
Markit’s final July reading on the service sector is expected Aug. 3.