The Composite Services Index of the Institute for Supply Management fell to 55.3 percent in June from 0.9 points in the previous month. The index stays above neutral and suggests expansion for the 25th consecutive month for the services sector. However, the June result also suggests the slowest pace since May 2020, suggesting that the momentum may be slightly slower (see top of chart first).
Among the key components of the Service Composite Index, the Business Activity Index rose 1.6 points to 56.1 (see first chart). This is the 25th month above 50. However, the three-month average came in at 56.6, down from the ten-year average of 58.7 during the last economic expansion from 2010 to 2019.
The new-orders index for services fell to 55.6 percent from 57.6 percent in May, down 2.0 percentage points. June was the third lowest result of the current expansion and below 69.0 readings from October 2021 (see below the first chart). Still, the new orders index has been above 50 percent for 25 consecutive months.
The non-manufacturing new-export-order index, a separate index that only measures export orders, also weakened in June, reaching 57.5 vs. 50.9 percent in May. Four reports reported an increase in six industrial export orders as opposed to a fall. However, for all respondents, about 21 percent said they perform and track individual activity outside the United States.
The backlog of orders in the services sector probably increased again in June as the index rose from 52.0 per cent to 60.5 per cent. It was June 18thM Months in a row with increasing backlog. Ten industries reported higher backlogs in June, while four declined.
The service employment index declined in June, from 50.2 percent in May to 47.4 percent. This is the third time in the last five months that the employment index has fallen below the neutral level (see below the first chart). Weak lessons reflect a lack of supply rather than a lack of demand. Seven industries reported an increase in employment and five reported a decrease. Respondents suggested that the supply of qualified labor was low and competition remained fierce.
Supplier Delivery, a measure of supply time for non-producer suppliers, came in at 61.9 percent, up from 61.3 percent in the previous month (see at the top of the second chart). This suggests that suppliers are lagging further behind in the service business and the slippage has accelerated somewhat from the previous month. The overall level of the index has remained high by historical comparisons but has fallen sharply since reading above 75 in October and November 2021. The survey of the manufacturing sector coincides with the recent improvement (see at the top of the second chart). For the services sector, sixteen industries reported slower deliveries in June while none reported faster deliveries.
The non-manufacturing price-paid index returned to 80.1 in June, the second consecutive fall from a record-high 84.6 percent in April (see second chart below). All eighteen industries reported paying higher prices for inputs in June. Price pressures have eased somewhat but are intense in both service and manufacturing (see second chart below).
The latest report from the Institute of Supply Management suggests that the services sector and the wider economy expanded for the 25th consecutive month in June. Respondents to the survey continued to highlight acute input price pressures, material and labor shortages, and logistical and transportation problems, although there were also some comments on signs of improvement in some of these cases. Respondents also noted concerns about rising interest rates and signs of layoffs by consumers.
Robert Hughes
Robert Hughes joined AIER in 2013 for more than 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy combining top-down macro analysis with bottom-up fundamentals.
Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.