Economic activity across services industries contracted in June for the second time in the last three months, according to evidence gathered from purchasing and supply executives in the latest Institute for Supply Management Report On Business for the sector. Retail was among the categories experiencing decreased activity.
The Services Purchasing Managers Index registered 48.8%, indicating sector contraction for the third time in 49 months.
The report was issued today by Steve Miller, chair of the ISM Services Business Survey Committee.
“In June, the Services PMI registered 48.8%, five percentage points lower than May’s figure of 53.8%,” he said in announcing the report. “The reading in June was a reversal compared to May and the second in contraction territory in the last three months. Before April, the services sector grew for 15 straight months, following a composite index reading of 49% in December 2022. The last contraction before that was in May 2020, 45.4%. The Business Activity Index registered 49.6% in June, which is 11.6 percentage points lower than the 61.2% recorded in May and the first month of contraction since May 2020. The New Orders Index contracted in June for the first time since December 2022. The figure of 47.3% is 6.8 percentage points lower than the May reading of 54.1%. The Employment Index contracted for the sixth time in seven months and at a faster rate in June. The reading of 46.1% is a one percentage point decrease compared to the 47.1% recorded in May.”
Miller noted that the Supplier Deliveries Index registered 52.2%, 0.5 percentage points lower than the 52.7% reported in May. The index stayed in expansionary territory, indicating slower supplier delivery performance, in June for a second month. Supplier Deliveries is the only ISM Report On Business index that is inversed, as a reading of above 50% indicates slower deliveries, which generally occurs as the economy improves and customer demand increases.
“The Prices Index registered 56.3% in June, a 1.8-percentage point decrease from May’s reading of 58.1%,” Miller stated. “The Inventories Index contracted in June, registering 42.9%, a decrease of 9.2 percentage points from May’s figure of 52.1%. The Inventory Sentiment Index, 64.1%, up 6.4 percentage points from May’s reading of 57.7%, expanded for the 14th consecutive month. The Backlog of Orders Index contracted in June for the first time since March, registering 44%, a 6.8-percentage point decrease compared to the May reading of 50.8%.”
Although it contracted for the second time in three months, the services PMI had grown for 15 consecutive months after a contraction in December 2022 and 30 months of expansion prior. Overall, the readings suggested sustained growth for the sector, Miller pointed out, as the PMI has not posted back-to-back months in contraction since April and May 2020.
“The decrease in the composite index in June is a result of notably lower business activity, a contraction in new orders for the second time since May 2020 and continued contraction in employment,” Milled related. “Survey respondents report that, in general, business is flat or lower, and although inflation is easing, some commodities have significantly higher costs. Panelists indicate that slower supplier delivery performance is due primarily to transportation challenges, not increases in demand.”
The services industries demonstrating growth in June were Other Services; Management of Companies & Support Services; Health Care & Social Assistance; Construction; Utilities; Finance & Insurance; Educational Services, and Professional, Scientific & Technical Services. The eight industries reporting a decrease in the month of June were Agriculture, Forestry, Fishing & Hunting, Real Estate, Rental & Leasing, Mining, Retail Trade, Public Administration, Wholesale Trade, Transportation & Warehousing and Information.
For its part, economic activity in the manufacturing sector contracted in June for the third consecutive month and the 19th time in the last 20 months, according to the Manufacturing ISM Report On Business. The Manufacturing PMI registered 48.5% in June, down 0.2 percentage points from the 48.7% in May. The overall economy continued to expand for the 50th month after one month of contraction in April 2020 as a Manufacturing PMI above 42.5%, maintained over a period of time, generally indicates an expansion of the overall economy.
The manufacturing industries reporting growth in June were Printing & Related Support Activities, Petroleum & Coal Products, Primary Metals, Furniture & Related Products, Paper Products, Chemical Products, Miscellaneous Manufacturing, and Nonmetallic Mineral Products. The industries reporting contraction in June were Textile Mills, Machinery, Fabricated Metal Products, Wood Products, Transportation Equipment, Plastics & Rubber Products, Food, Beverage & Tobacco Products, Electrical Equipment, Appliances & Components and Computer & Electronic Products.
