American manufacturing may be mired in a downturn, but the mighty US services sector most assuredly isn’t.
On a day when a report on private sector hiring suggested leisure and hospitality businesses added nearly a quarter of a million new jobs last month, ISM’s gauge of services sector activity printed ahead of estimates and underlying measures of demand were solid.
At 53.9, the headline print for June rose nearly four points from May and exceeded every estimate from five-dozen economists. The range was 48.5-53.3.
The final read on S&P Global’s gauge for June was revised higher from the flash print to 54.4, down from May, but higher than June of last year and the fifth month in expansion territory. Notably, the two indexes now “agree.”
“June saw encouraging resilience of the US services economy, which helped offset a renewed contraction of manufacturing output to ensure the overall pace of economic growth remained encouragingly solid,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said Thursday, adding that the US economy likely grew at a pace “just under 2%” in Q2 based on the service PMI readings.
An underlying measure of expectations in the S&P report rose to 69.9, the highest in over a year. In the ISM survey, the new orders gauge rose to 55.5 from 52.9 in May, the business activity index jumped to 59.2 from 51.5 and the employment gauge moved solidly back into expansion territory at 53.1 for June after dipping below the demarcation line in May.
“The majority of respondents indicate that business conditions remain stable; however, they are cautious relative to inflation and the future economic outlook,” ISM’s Anthony Nieves remarked. The anecdotes felt lively. Firms are “very busy,” “active” and business is “steady.” There was some mention of slower growth, but overall, the situation remains favorable.
As for the inflation read-through, the ISM prices gauge dropped to 54.1, the lowest since March of 2020, when the pandemic first swept the Western world.
Taken with a very subdued reading on the manufacturing side, the soft landing narrative is alive. I guess.
But robust demand doesn’t exactly shout “disinflation.” As S&P Global’s Williamson put it, “The worry is that, although selling price inflation has cooled further, June saw increased cost growth in the service sector, which has been the main area of inflation concern in recent months.”
He continued: “Higher wages in particular are driving costs up.”
