Data released Monday on the U.S. services sector surprised economists by showing stronger-than-expected growth in July,  with new orders rising and employers increasing their hiring. 

The Institute of Supply Management (ISM) services sector  Purchasing Managers’ Index (PMI)  for July came in at 51.4%, above the 50.9% that economists surveyed by the Wall Street Journal and Dow Jones Newswires had projected. The index bounced back from last month’s decline, when the index came in at 48.%. A reading above 50% indicates expansion of the services sector.

The monthly survey showed that employers expanded hiring for just the second time in 2024, while new orders also moved higher in July. Coming after last week’s jobs report, which showed that hiring slowed in July, economists said the latest reading of the ISM services index demonstrates that the economy still has some strength. 

“At a moment when global financial markets are selling off over concerns that the U.S. economy could be on thin ice, the ISM services index is a reminder that service-sector activity remains robust,” wrote Wells Fargo economists Tim Quinlan and Shannon Seery Grein.

The ISM services industry data contrasts with recent survey results from the manufacturing sector, where ISM data last week showed four straight months of decline in manufacturing. 

Data Shows Hiring Increases

The Wells Fargo note pointed out that while employment data in the ISM survey showed improvement, the gains in the labor market are concentrated in a few areas, with other segments still showing signs of slowing. 

“Even as the employment component rose back into expansion, only eight of 18 industries reported an increase in hiring last month, which is in line with the slower breadth of hiring reported elsewhere,” the Wells Fargo note showed.

S&P Services PMI Also Shows Business Expansion

The S&P Global Services PMI index came in at 55.0, dipping from last month, and below economist projections of 55.9. Like with the ISM data, the above-50 reading indicates that economic activity improved in the services sector.

“Another strong expansion of business activity in the service sector, which over the past two months has enjoyed its best growth spell for over two years, contrasts with the deteriorating picture seen in the manufacturing sector, where output came close to stalling in July,” wrote Chris Williamson, S&P Global Market Intelligence chief business economist.