Key facts
- U.S. services sector activity decreased in June.
- The ISM services PMI fell to 54.0 in June.
- Employment in the services sector rebounded in June.
- Prices paid by services businesses decreased but remained high.
- Supplier delivery times remained long.
U.S. services sector activity saw a slight dip in June, with new orders decreasing, though order backlogs grew. The Institute for Supply Management's nonmanufacturing purchasing managers index fell to 54.0 from 54.5 in May, indicating continued expansion but at a slower pace. This slowdown was partly attributed to the easing of demand that had been boosted by businesses placing orders amid Middle East conflict, which also impacted commodity prices.
The prices paid index for services businesses declined to 67.7 from 71.3 in May, suggesting a moderation in inflation, though underlying price pressures may persist due to investments in artificial intelligence. Supplier delivery times remained longer, a factor typically associated with a strengthening economy, but in this instance, it reflects strained supply chains rather than robust demand.
Despite a slowdown in job growth and downward revisions to previous months' payroll gains, the services sector employment measure rebounded to 51.2 in June after three months of contraction. This resilience in the labor market, coupled with persistent inflation concerns, leads most economists to expect the Federal Reserve to continue raising interest rates. The central bank's current benchmark rate is between 3.50% and 3.75%, with policymakers anticipating further increases this year.