HomeContributorsFundamental AnalysisISM Shows Services Sector Shrinks in June

ISM Shows Services Sector Shrinks in June

The ISM Services index tumbled to 48.8 in June from 53.8 in May, well short of the 52.7 consensus expectation. Only eight of 18 industries reported growth for the month – down from 13 in May.

The business activity sub-index and new orders signaled shrinking activity, falling 11.6 and 6.8 percentage points, respectively, to 49.6 and 47.3.

The prices paid sub-component pulled back to 56.3 percentage points (pp) from 58.1 in May, while the supplier deliveries sub-index was little changed at 52.2 (52.7 in May).

The employment sub-component remained in contraction (46.1), indicating a fifth consecutive month of employment declines.

Key Implications

Things are getting choppy in the services sector. After a healthy bounce-back in activity last month, the ISM report showed the sector contracted again in June. While April’s print was just on the wrong side of 50 (49.4), June’s figure is now the second time in three months that the index is showing activity in the sector slowed. Moreover, unlike in April, both the business activity sub-index and the new orders index flashed contraction.

The employment index has been signaling contraction for five months now, and new orders and activity joined it in the red this month. After a long run of growth, the services sector looks to be running up against the weight of restrictive monetary policy and slowing consumer spending. For the Fed, this is another welcome signal that monetary policy is proving effective in cooling consumer demand beyond just the interest-rate sensitive goods sector.

TD Bank Financial Group
TD Bank Financial Grouphttp://www.td.com/economics/
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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