Key Takeaways:
US preliminary PMI readings for July, due Thursday at 13:45 UTC, will test whether the world's largest economy can sustain its expansion as manufacturing and services indicators face diverging outlooks.
The S&P Global US Manufacturing PMI has hovered near the 50 expansion-contraction threshold in recent months, while the Services PMI has held comfortably in expansion territory. Thursday's preliminary July readings will show whether that gap is widening or narrowing.
"Markets will be watching the services component most closely — that's where the resilience has been concentrated," said James Okafor, macro analyst at Edgen. "A print below 50 in manufacturing would reinforce the narrative of a two-speed economy."
The manufacturing sector has been the weaker link in the US economy, with elevated borrowing costs weighing on capital spending and housing-related demand. A reading below 50 would mark the first contraction in three months, potentially reigniting debate over whether the Federal Reserve has kept policy too tight for too long. The last time manufacturing contracted for a sustained period was in the first half of 2024, when the index spent four consecutive months below 50 before recovering in the third quarter.
Services, by contrast, have remained the primary engine of growth, supported by consumer spending and a still-tight labor market. The preliminary July reading is expected to show continued expansion, though the pace of growth may moderate from the elevated levels seen in the second quarter.
The global context adds another layer. Eurozone data released earlier this week showed business activity hitting an 11-month high in July, while Germany — the region's largest economy — returned to growth after four months of contraction, according to S&P Global PMI surveys. That improving picture could provide a tailwind for US exporters, though the divergence between manufacturing and services remains stark.
The data will influence expectations for the Federal Reserve's next policy move. A services reading that surprises to the upside could reduce the probability of near-term rate cuts, while a manufacturing contraction would add to arguments that the economy needs looser policy. The Fed next meets Sept. 16-17, with fed funds futures currently pricing roughly even odds of a quarter-point cut.
This article is for informational purposes only and does not constitute investment advice.
