The growth rate in the US service sectors dropped in July to its lowest level in the last three years as trade tensions with China raise concerns over the outlook of the US economy.
The Institute of Supply Management’s non-manufacturing activity index was at 53.7 last month, which is a drop of 1.4 points from June. According to ISM, the last month’s figure is the lowest since August 2016.
The slowdown drags the non-manufacturing activity index nearer to the mid-level. Should the reading fall below 50, it would mean the sector is contracting.
The services industry includes healthcare, professional services, and other non-manufacturing industries, and accounts for roughly 80% of US gross domestic product.
The current report, which comes on the heels of another IMS survey that highlighted the weak growth pace in the US manufacturing sector, underlines how the rising trade problems with China are denting business confidence.
Hopes for a breakthrough in trade talks were dashed after President Trump slapped 10% tariff on $300 billion worth of Chinese goods. China retaliated by letting Renminbi fall below the ‘7-mark’ level, indicating a willingness to manipulate its currency to hurt the US.
According to Ian Lyngen, head of US interest rates strategy at BMO Capital Markets, the latest figures are a real cause of concern, since the US economy is heavily reliant on the service industry.
The ISM’s new orders activity index in July is 54.1, compared to 55.8 in June. Its measures on services prices and new export orders dropped to 56.5 from 58.9 and 53.5 from 55.5, respectively.
The only index that saw an uptick was employment, which improved its reading from 55.0 to 56.2 in July.