US factory activity stabilized in July, while the services sector cooled, data released on Monday suggested.

Market participants are accustomed to the opposite conjuncture. Month after month, investors are subjected to tales of manufacturing malaise juxtaposed with relatively good news on the services side, where businesses continue to benefit from pent-up demand, legacy savings buffers and “switching,” as Americans favor experiences over “stuff.”

In July, though, S&P Global’s factory gauge for the US economy improved to 49, according to the preliminary release, still indicative of contraction, but much better than June’s 46.3 reading and well ahead of consensus, which expected further deterioration.

The services gauge, by contrast, slipped to 52.4, below estimates, down two points from June and the most tepid expansion since February.

I won’t bury the lede: There was no real silver lining in the release. It’s nice that manufacturing might’ve stopped decelerating, but the overall message was concerning.

“July is seeing an unwelcome combination of slower economic growth, weaker job creation, gloomier business confidence and sticky inflation,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said Monday.

Selling prices rose this month, led by services firms, where management is looking to pass along “higher costs and increased interest payments to customers,” as the release put it. Somebody has to pay for higher wages and rising debt costs, and heaven forbid it should come off the bottom line. Service providers cited wage costs tied to scarce labor and fierce competition to retain workers.

The prices charged index for the services sector is nowhere the highs seen early last year, but it’s well off the lows, sits above the long-term average and looks… well, “sticky” for lack of a better word. The services input price gauge, while still elevated, nevertheless receded sharply, touching the lowest since October of 2020.

Selling prices were little changed on the goods side, while input costs rose. It would appear that services firms still have pricing power, while manufacturers don’t.

Notably, foreign demand is propping up new orders, while higher rates are starting to bite domestically. “Rising spend from international clients [on services] is helping offset a becalmed manufacturing sector and increasingly subdued demand from US households and businesses,” Williamson went on to say.

The outlook was grim. Or as grim as it can be for an economy that’ll still count as the proverbial “cleanest dirty shirt” even in a mild recession. Year-ahead business expectations were the most tepid of 2023, which Williamson said “keep[s] alive fear that the US may yet succumb” to a recession.