The latest Services ISM® Report On Business® indicates a contraction in economic activity in the services sector for the second time in three months, with the Services PMI® registering 48.8 percent in June, reflecting a sector contraction for the third time in 49 months. This decline is attributed to a sharp pullback in business activity and declining orders, with the Business Activity Index at 49.6%, New Orders Index at 47.3%, Employment Index at 46.1%, and Supplier Deliveries Index at 52.2%. The report suggests a significant reversal from the prior month, with the services gauge showing a further moderation in growth. This has led to a marked reversal from the prior month, with the figures reinforcing the case for Federal Reserve interest-rate cuts. However, the figure stands in contrast to S&P Global’s services index, which showed a quicker rate of expansion at 55.3, the highest since April 2022. The ISM's survey of service providers indicates that demand is feeling a greater strain from high borrowing costs, cooler business investment, and uneven consumer spending. Eight services industries reported a contraction in June, including real estate, mining, and retail trade, while eight sectors reported growth. Additionally, the ISM's manufacturing PMI slipped to 48.5 in June, marking a third straight month of contraction, with weak demand for goods indicating that inflation could continue to subside. The decline in the services survey is closely watched by markets and has led to a discussion about the potential impact on interest rates and the overall economic outlook.
