U.S. business activity picks up in July due to stronger service sector growth

Preliminary data released by IHS Markit on Wednesday indicated that the U.S. private sector growth hit a three-month high in July, as stronger service sector growth offset a downturn manufacturing production.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) stood at 50.0 in July, down 50.6 in June. The latest reading was the lowest since September 2009 and signaled stagnant manufacturing business conditions.

Economists had expected the reading to increase to at 50.9.

A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction.

According to the report, the negative influences on the headline PMI were lower production volumes, a drop in employment and decreased stocks of purchases.

Meanwhile, the Markit flash services purchasing manager's index (PMI) rose to 52.2 this month, from 51.5 in the prior month. The reading signaled the strongest rise in service sector output since April.

Economists had expected the reading to increase to 51.7.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 51.6 in July, up marginally from 51.5 in the previous month, pointing to the quickest expansion in the private sector in three months.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit noted, “The survey data indicated that the economy started the third quarter on a disappointingly soft footing. The PMIs for manufacturing and services collectively point to annualized GDP growth of just 1.6%, up only very marginally from a lackluster 1.5% indicated by the survey in the second quarter.”