By Maria Martinez

Activity in the U.S. services sector improved in July for the third consecutive month and gave signs of stabilization as businesses continued to reopen following the coronavirus lockdown, data from IHS Markit showed Wednesday.

The final reading for the U.S. Services Purchasing Managers' Index for July was 50.0, up from the 47.9 level registered in June and above the flash figure of 49.6.

Economists polled by The Wall Street Journal expected the indicator to be at 49.6.

The U.S. Services PMI is a survey-based measure of activity in industries such as communications, finances or consumer services. A level above 50 indicates expansion, while a reading below 50 signals contraction.

The latest data brought to an end a five-month sequence of contraction. "Although some firms remained closed or noted weak client demand and disrupted working practices due to the pandemic, others stated that the resumption of business had boosted output," IHS Markit said.

New orders declined at a slightly quicker rate as domestic and foreign client demand remained muted, which was often attributed to ongoing virus-related restrictions, the report said.

"The U.S. was the only major economy to see Covid-19 containment measures tighten again in July, and this is reflected in the data, with new business inflows falling at an increased rate to hint at the possible start of a doubledip in business activity," said Chris Williamson, chief business economist at IHS Markit.

Operational restrictions led to constraints on capacity, with firms increasing their workforce numbers for the first time since February to process unfinished business, IHS Markit said.

"Businesses have on balance become more optimistic about recovery in the year ahead, and took on extra staff to ensure capacity is sufficient to meet future growth," Mr. Williamson said.

Output expectations improved to the strongest since March 2019 amid hopes of an end to lockdown measures over the longer term. However, the degree of confidence was below the series average.

Regarding prices, input costs and output charges rose at sharper rates as there were some reports of personal protective equipment costs rising and supplier price increases were partially passed on to customers, IHS Markit said.

IHS Markit said the Composite PMI Index was 50.3 in July, up from 47.9 in June.

Write to Maria Martinez at maria.martinez@wsj.com

(END) Dow Jones Newswires

August 05, 2020 10:28 ET (14:28 GMT)