RTTNews - Wednesday morning, the Institute for Supply Management released its report on activity in the service sector in the month of July, showing that the pace of contraction in the sector unexpectedly accelerated from the previous month.

The ISM said its index of activity in the sector edged down to 46.4 in July from 47.0 in June, with a reading below 50 indicating a contraction in the sector. The decrease came as a surprise to economists, who had expected the index to rise to 48.0.

Commenting on the data, Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee said, The majority of respondents' comments reflect a sense of uncertainty and cautiousness about business conditions.

The unexpected acceleration in the pace of contraction in the sector was partly due to a faster pace of contraction in new orders. The new orders index slipped to 48.1 in July from 48.6 in June, indicating the tenth consecutive month of contraction.

Employment in the service sector also saw further weakness, with the employment index falling to 41.5 in July from 43.4 in June.

Earlier in the day, payroll processor Automatic Data Processing (ADP) said that the service-providing sector lost 202,000 jobs in July.

ADP said that the drop in service-providing jobs contributed to a decrease of 371,000 jobs in the private sector as a whole. Economists had been expecting a decrease of about 350,000 jobs.

The ISM report also showed that the backlog of orders index fell to 42.0 in July from 46.0 in June, while the new export orders index slid to 47.5 from 54.5 in the previous month.

Additionally, the report showed the prices index dropped to 41.3 in July from 53.7 in the previous month. The steep drop by in the index indicated a significant decrease in prices from June.

On Monday, the ISM released a separate report showing a much slower than expected pace of contraction in manufacturing activity in July.

The ISM said its index of activity in the manufacturing sector rose to 48.9 in July from 44.8 in June. Economists had been expecting a more modest increase to a reading of 46.5.

A turnaround in new orders contributed to the slower pace of contraction, with the new orders index jumping to 55.3 in July from 49.2 in June.

Production also showed a notable improvement, growing at a faster pace compared to the previous month. The production index rose to 57.9 in July from 52.5 in June.

Norbert J. Ore, chair of the ISM Manufacturing Business Survey Committee, noted that the moves by the new orders and production indexes significantly above 50 set an expectation for future growth in the sector.

For comments and feedback: contact editorial@rttnews.com