KEY POINTS OF ISM SERVICES:

• July ISM services PMI rises to 56.7 from 55.3, beating expectations calling for a drop to 53.5
• Strong trade activity suggests the economy remains resilient and may be able to avoid a hard landing
• All eyes will now turn to the July NFP report

Most Read: S&P 500 and Nasdaq 100 Technical Outlook for the Days Ahead

A measure of general business services activity in the United States rose more than expected at the start of the third quarter, a sign that the outlook may not be deteriorating as quickly as many Wall Street analysts had predicted. , despite growing headwinds, including soaring inflation, falling real incomes and tightening financial conditions.

According to the Institute for Supply Management (ISM), the services PMI in July rose to 56.7 from 55.3 in June, a robust rate of expansion that suggests the economy is not about to recover. fall off the cliff. Analysts polled by Bloomberg News had expected the overall index to fall to 53.5. For context, any reading above 50 indicates growth, while readings below this level indicate contraction in the sector.

Under the hood, the non-manufacturing sector was supported by a strong increase in new orders, which jumped to 59.9 from 55.6, signaling that demand conditions may be improving. The employment index, for its part, remained in contractionary territory, but rose from 47.4 to 49.1, a welcome improvement that suggests that the rate of employment growth should remain healthy as companies are increasing their operating capacity to meet demand.

DailyFX Economic Calendar

Source: DailyFX

On the inflation front, prices paid by service providers fell 7.8 points to 72.3, indicating that cost charges are rising at a much slower pace than in previous months. If this trend continues, CPI readings could begin to recover rapidly this fall, paving the way for less hawkish policy before the start of the year. This scenario could be positive for risky assets

Overall, today’s data is encouraging on all fronts. Resilient economic activity, coupled with easing inflationary pressures, may bolster optimism about the country’s ability to avoid a hard landing. Either way, to better gauge the strength of the economy, traders should closely watch Friday’s July NFP report. In terms of expectations, US employers are expected to add 250,000 jobs after adding 372,000 jobs in June.

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—Written by Diego Colman, Market Strategist for DailyFX