By Xavier Fontdegloria
Private sector business activity in the U.S. lost some momentum in July as the services sector cooled amid labor and supply shortages.
The flash reading for the U.S. Composite Output Index fell to 59.7 in July from 63.7 in June, preliminary data from IHS Markit showed Friday.
The indicator suggests that the U.S. economy continued to expand solidly in the month, albeit the rate of output growth was the slowest since March.
The indicator is based on data from the firm's PMI surveys for manufacturing and service sectors. Growth in the service sector slowed but accelerated in manufacturing, chiming with many economists' views that the economic recovery from the pandemic has likely topped in the second quarter.
"While the second quarter may ... represent a peaking in the pace of economic growth according to the PMI, the third quarter is still looking encouragingly strong," said Chris Williamson, chief business economist at IHS Markit.
Some moderation of service sector expansion was expected after the initial reopening of the economy, he said.
IHS Markit's flash U.S. Services Business Activity Index decreased to 59.8 in July from 64.6 in June, below the 64.2 expected reading from economists polled by The Wall Street Journal and a five-month low.
Service providers noted customer hesitancy amid significant increases in selling prices. Firms also linked lower growth to labor shortages and difficulties acquiring stock, the report said.
The IHS Markit Flash Manufacturing PMI rose to 63.1 in July from 62.1 in June, reaching a new record-high. Economists expected the indicator to fall slightly to 61.8.
Supporting overall growth was a quicker rise in new orders, as new and existing customers ramped up their spending. Production rose at a slightly quicker pace despite further reports of material shortages, IHS Markit said.
Supply-chain problems and cost pressures remained a constrain for both manufacturers and services providers, pushing prices higher. However, there were signs of inflationary pressures peaking, with both input cost and selling price gauges falling for a second month in July, Mr. Williamson said.
Price pressures, supply constraints and the Delta variant remain major sources of uncertainty among businesses, with business optimism about the year ahead falling to the lowest seen so far this year, the report said.
"The concern is this drop in confidence could feed through to reduced spending, investment and hiring, adding to the possibility that growth could slow further in coming months," Mr. Williamson said.
Write to Xavier Fontdegloria at email@example.com
(END) Dow Jones Newswires
July 23, 2021 10:25 ET (14:25 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.