U.S. economy oil prices risk grows after July pickup
S&P Global surveys showed faster U.S. services growth in July, but renewed Iran tensions and pricier oil threaten inflation relief.
By Frankie Delgado · News Reporter
3 min read
The U.S. economy oil prices story snapped back into focus in July: S&P Global surveys showed business activity picking up and hiring improving, while renewed tensions tied to Iran pushed energy costs higher again.
S&P Global’s services index climbed to 53.6 in July from 51.2 a month earlier, according to the firm’s survey data cited by MarketWatch. That marked an eight-month high for the service side of the economy, a broad bucket that includes restaurants, retailers and hospitals, and accounts for most U.S. jobs.
Manufacturing stayed in expansion, though with less zip. S&P Global’s manufacturing survey edged down to 53.8, MarketWatch reported.
The surveys are closely watched because they arrive early in the month and offer a quick read on whether companies are expanding or shrinking. In S&P Global’s indexes, a reading above 50 signals growth.
What do the S&P Global surveys say about the U.S. economy?
The July numbers pointed to positive momentum across U.S. businesses, especially in services. S&P Global chief business economist Chris Williamson warned, however, that “July’s upturn may not be the start of an improving trend,” according to MarketWatch.
The catch is oil. MarketWatch reported that the economy had appeared set to benefit from a possible end to the U.S. conflict with Iran, but peace talks failed, hostilities resumed and crude prices rose again.
Oil has not returned to its April peak of $113 a barrel, according to MarketWatch. It has climbed to about $90 after trading below $70 only weeks ago.
That move matters because energy prices feed into inflation for businesses and households. Higher oil can raise transportation, production and fuel costs, adding pressure at a time when inflation is already a central concern for policymakers.
MarketWatch reported that the latest rise in energy costs could put more upward pressure on inflation and may lead the Federal Reserve to raise interest rates in July or, more likely, September. Higher rates would add another burden for an economy already dealing with pricier oil.
How did markets react?
Stocks were slightly higher in Friday trading, according to MarketWatch. The Dow Jones Industrial Average rose 0.19%, while the S&P 500 was listed as nearly flat to slightly lower in the market data shown with the report.
The market reaction came as investors weighed two competing signals: stronger business surveys on one side, and the risk of more inflation and tighter Fed policy on the other.
For now, the July data show an economy still growing. Whether that strength lasts may depend on where oil prices go next and whether the Iran conflict adds more pressure to inflation.
This story draws on original reporting from MarketWatch.