–ISM’s Nieves: Firms Cautious About Inflation, Growth Outlook
–Nieves: Expect Positive Growth in Services but Watch How Manufacturing Goes After Summer
–Nieves: Employment Up but Remains a Mixed Bag
By Max Sato
(MaceNews) – Business activity in the U.S. service sector was in positive territory for the sixth straight month in June, with the key index rebounding after slipping to a five-month low in May, as new orders came in at a faster pace, employment conditions bounced back to growth and inflation moderated, according to the latest survey by the Institute for Supply Management (ISM) released Thursday.
The main index, which shows the directional change of economic activity, rose 3.6 percentage points to a four-month high of 53.9 in June after falling 1.6 points to 50.3 in May, edging up 0.7 point to 51.9 in April, slipping to 51.2 in March from 55.1 in February, surging 6.0 points to 55.2 in January and plunging 6.3 points to 49.2 in December, which was the first contraction since May 2020, when it registered 45.4.
The index came in much stronger than the median economist forecast of 50.8. It is well above the recent low of 41.7 hit in April 2020 and 40.1 in March 2009, which is the lowest since the inception of the Services PMI in 2008. But it also remains well below the record high of 68.4 reached in November 2021.
“There has been an uptick in the rate of growth for the services sector,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement. “This is due mostly to the increase in business activity, new orders and employment.”
Looking ahead, he also said, “The majority of respondents indicate that business conditions remain stable; however, they are cautious relative to inflation and the future economic outlook.”
“Even though prices have been moderating, they are still strong,” he told reporters.
Credit tightening has slowed the housing sector, he said, adding there are expectations that the Federal Reserve will be raising interest rates again to guide inflation lower after pausing in June during its tightening cycle that began in March last year.
Asked whether the weakness in the manufacturing sector may dampen confidence among service providers, Nieves said consumers are spending more on recreation, traveling and food while the retail sector is slightly down.
“I believe that we still see this positive growth going forward,” he said. “I think we have to keep an eye on manufacturing…what is going to look like in September.” Factory operations tend to slow down during the summer.
ISM data released Monday showed U.S. manufacturing activity was in contraction territory for the eighth straight month in June, with sector index falling 0.9 point to 46.0, as firms lowered production and used more layoffs to manage head counts amid lingering uncertainty over the timing of recovery in demand.
The results of the ISM’s semi-annual survey released on May 8 showed that supply management executives at U.S. manufacturers and service providers expect slower growth but did not indicate a recessionary period.
Of the four sub-indexes that directly factor into the services PMI, growth in business activity accelerated for the first time in five months in June; the pace of increase in new orders picked up again; employment popped up after its first contraction in five months in May; and supply deliveries continued improving overall.
The business activity index recovered most of its declines seen in the previous four months, up 7.7 percentage points at 59.2, after dipping 0.5 point to 51.5 in May and slumping 3.4 points to 52.0 in April, both of which were three-year lows. The latest figure is the highest since 60.4 in January.
The new orders index expanded in May for the sixth consecutive month after contracting in December 2022 for the first time since May 2020. The figure of 55.5 is 2.6 percentage points higher than 52.9 seen in May, when the index fell 3.2 points after rising 3.9 points to 56.1 in April.
The employment index rebounded 3.9 points to 53.1 in June after slipping below the key 50 line for the first time in five months in May, when it fell 1.6 points to 49.2, which was the lowest since 49.2 recorded in October 2022. Comments from respondents indicated that some firms are still having trouble finding workers, although employment overall is still a mixed bag, Nieves said.
“Labor rates continue to be a challenge even with more people looking to return to work,” a firm in the transportation and warehousing industry said. “Inflation is most likely a cause for this.”
A wholesale trader said, “High operational expenses continue to put pressure on our business and limit hiring.”
The supplier deliveries index — the only ISM index that is inversed — registered 47.6 in June, just 0.1 point lower than the 47.7 recorded in May, when it fell 0.9 point from 48.6 in April. In the last six months, the average reading of 47.9 reflects the fastest supplier delivery performance since June 2009, when the index stood at 46.0. A reading of above 50 indicates slower deliveries, which is typical as the economy improves and customer demand increases.
Supply chains have improved but some firms are cautious. “Monitoring China’s anti-espionage legislation going into effect on July 1 that may have an impact on normal supply chain business operations like market research, recruitment, trade secret leakage, employing former government officials and data sharing between Chinese and foreign companies in joint domestic or cross-border projects,” a construction company said.
Inflationary pressures continued easing as supply chains have improved. The prices index fell 2.1 points to 54.1 in June, hitting the lowest since 50.4 in March 2020, after falling 3.4 points to 56.2 in May and rising 0.1 point to 59.6 in April. The index is well below its record high of 83.2 hit in April and February 2022. The prices index continues to indicate movement toward equilibrium, with a 12th consecutive reading near or below 70 (and four straight months below 60), following 10 straight months of readings near or above 80.
The inventories index slipped 2.4 points to 55.9 in June after surging 11.1 points to 58.3 in May and sliding 5.6 points to 47.2 in April (a sub-50 figure indicates contraction), which followed two months of growth and eight months of contraction from June 2022 to January 2023.
The index for backlog orders rose 3.0 points to 43.9 in June after falling 8.8 points to 40.9 in May, which was the lowest reading since 40.0 in May 2009.
The new export orders index rebounded 2.5 points to 61.5 in June after falling 1.9 points to 59.0 in May and surging 17.2 points to 60.9 in April in reaction to an 18.0-point plunge to 43.7 in March.
—
Contact this reporter: max@macenews.com
Content may appear first or exclusively on the Mace News premium service. For real-time delivery in entirety contact tony@macenews.com. Twitter headlines @macenewsmacro.