US services PMI cools to 54.1 as employment slips into contraction

The Institute for Supply Management's services PMI rose to 54.1 in July from 54 in June, a marginal miss against the 54.5 consensus from economists polled by The Wall Street Journal. The reading extends the sector's expansion to 24 consecutive months, though the employment index slipped back into contraction at 47.4 after a single month of growth.

"Tariff impacts and the Middle East conflict continued to be mentioned by respondents, but much less frequently than in prior reports," Steve Miller, chair of the ISM Services Business Survey Committee, said. "Overall, the U.S. services economy continues to be resilient."

New orders strengthened to 57.2, up from June, while the prices index held above 70 for the fourth time in five months — a sign services inflation remains stubborn. The sector accounts for nearly 90 percent of US economic activity, and the July reading sits 0.7 point above the 12-month average of 53.4.

The mixed print lands as the Fed weighs sticky services inflation against a cooling labor market. Gold jumped 3.65 percent to $4,225.80 an ounce, its highest in six weeks, while the Dow Jones Industrial Average added 459 points to 54,545 and the 10-year Treasury yield hovered near 4.62 percent. Friday's nonfarm payrolls report, where economists expect 80,000 jobs, will shape the next policy move.

Employment Slips Back Into Contraction

The employment sub-index sliding back below 50 after one month of expansion echoes the softness flagged in Wednesday's ADP report, which showed private employers added just 44,000 jobs in July, the weakest in six months and well below the 70,000 consensus. The gauge had climbed to a four-month high of 51.2 in June, per the ISM's prior release, making the reversal a fresh warning on labor demand.

Sticky Prices Keep the Fed on Hold

The prices index above 70 for the fourth time in five months keeps the inflation problem front and center. Core PCE inflation ran at 3.3 percent year over year in June, still well above the Fed's 2 percent target, and the elevated services prices gauge suggests that stickiness is not fading. That tension — a softening labor market against persistent price pressure — leaves the central bank with little room to ease aggressively.

For risk assets, the fading tariff concerns flagged in Miller's comments carry a subtle implication. Trade-policy uncertainty has historically correlated with bursts of Bitcoin buying as a hedge, and if that anxiety genuinely recedes, one tailwind for crypto's "digital gold" narrative weakens even as the broader risk-on backdrop holds. The July report itself contained no references to crypto tokens or blockchain services, showing how separate the two worlds remain.

The immediate test comes Friday, when the Labor Department releases July nonfarm payrolls. A print near the 80,000 consensus would reinforce the picture of a resilient but decelerating economy, keeping the Fed on hold at its September meeting. A sharper miss, by contrast, would revive bets on an earlier cut — a scenario that would likely extend gold's rally and push Treasury yields lower.

This article is for informational purposes only and does not constitute investment advice.