- The ISM Services index slipped 0.5 points from 54.5 in May to 54.0 in June, remaining in expansionary territory for a 24th consecutive month.
- Demand moderated but stayed healthy, with the new orders index falling 2.2 points to 55.1 after May’s sharp rebound.
- Current output cooled from a firm pace, as business activity declined 2.3 points to 55.4 while remaining solidly above the 50 threshold.
- Labor market conditions improved, with employment rising 3.3 points to 51.2 and returning to expansion for the first time in four months.
- Price pressures eased but remained elevated, with the prices paid index falling 3.6 points to 67.7—its first reading below 70 since February, but still above 60 for a 19th straight month.
- The largest move came from inventories, which fell 11.3 points to 51.2 after May’s record-high reading, while supplier deliveries eased slightly to 54.4 and backlogs rose 3.6 points to 54.9.
Key Implications
- The June report points to a modest cooling in services momentum. The headline index, business activity and new orders all eased from May’s stronger readings but remained comfortably in expansionary territory. The sharp pullback in inventories was the standout move, suggesting May’s stock building surge was not sustained, but the rise in backlogs indicates that demand is still firm enough to keep pressure on capacity. Importantly, employment moved back into expansion, reducing some of the prior concern that firms were relying on productivity gains rather than hiring to meet demand.
- Price conditions improved at the margin but remain a key concern. The prices index fell below 70 for the first time since February, helped by mixed reports on fuel-related costs, but it remains well above the 50 threshold and has been above 60 for 19 consecutive months. Taken together, the report shows services demand still expanding, hiring improving and cost pressures easing gradually – a mix the Fed is likely to view as consistent with patience rather than a clear green light to move.
