The services sector makes up over three-quarters of the US economy. The recent tick up in the Institute for Supply Management (ISM) Non-Manufacturing survey has therefore helped moderate near-term recessionary fears. However, the services Purchasing Managers' Index (PMI) survey - which places more weight on forward-looking components - entered contractionary territory (below 50) in July. If the ISM survey follows the PMI lower in coming months, then the Federal Reserve will begin to face a clearer trade-off between supporting growth and taming inflation. An extremely tight labour market, alongside still significantly above target inflation, means the Fed cannot stop raising interest rates yet. As such, risks to US growth remain.

Divergence in US services surveys continues

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