The fortunes of America’s services providers and factories diverged markedly in July, according to preliminary PMIs released on Wednesday.

Services activity expanded at the briskest pace in 28 months, S&P Global’s gauge showed. At 56, the headline easily topped estimates and showed a marginal acceleration from June’s pace, which was solid on its own.

By contrast, US factory activity contracted early this month. 49.5 was the first sub-50 reading of 2024 on S&P global’s gauge.

The spread between the two was the widest in over a year. New orders decelerated sharply on the manufacturing side.

Recall that the S&P Global services survey diverged dramatically from ISM’s services headline in June. It’ll be interesting to see if the ISM gauge moves higher for July, although most observers don’t see a lot of utility in trying to reconcile the two anymore. As for markets, the charade’s always the same: Trade the S&P Global releases on the flash prints, then forget all about them when the ISM results are released two weeks later.

Chris Williamson, S&P Global’s Chief Business Economist, on Wednesday described a “Goldilocks” scenario for the US as Q3 dawned. The economy’s “growing at a robust pace while inflation moderates,” he said.

That upbeat assessment was tempered by what he called “some worrying elements.” “[G]rowth has become skewed, with manufacturing slipping back into contraction as the service sector gains further strength,” Williamson wrote, adding that higher costs “linked to raw material[s], shipping and labor… could feed through to higher selling prices if sustained.” Or they could “put a squeeze on margins” if you believe corporates are running out of pricing power in what may (or may not) be a late-cycle environment.

Meanwhile, across the pond, flash PMIs for Europe’s largest economies painted an uninspiring picture. Although services activity in France picked up to a three-month high, the headline’s barely in expansion territory and French manufacturing’s mired in a slump. France may get a fillip from the Olympics, but after that it’s anyone’s guess.

In Germany, services activity expanded, but at the slowest overall pace in four months, while the factory gauge printed a God-awful 42.6. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank which produces the European PMIs in conjunction with S&P Global, lamented “a steep and dramatic fall in [German] manufacturing output.” “This looks like a serious problem,” he mused, calling lost marketshare to China “the most significant factor impacting the German manufacturing sector.” That problem, he emphasized, “is here to stay.”

Panning out to the bloc-wide gauges, the composite index clung to the most tenuous of expansions, printing 50.1.

At 51.9, the services gauge printed a four-month low and the manufacturing index, at 45.6, betrayed the worst reading of the year.

Last week, Christine Lagarde suggested another rate cut at the September ECB meeting isn’t a foregone conclusion — the situation’s “wide open,” she told reporters.

I don’t think that’s accurate. If you ask me, September’s a done deal for the second cut of the cycle for the ECB. Because, as usual, Europe appears to be teetering on the edge of a mild downturn — a “slowcession,” so to speak.

“This is another report that will not please the ECB,” ING’s Carsten Brzeski said. “The July PMIs show the eurozone economy losing further momentum.”