The ISM services index contracted for the second time in three months, raising concerns about the service sector's resilience. However, the results may overstate current weakness because the details indicate a moderating rather than contracting sector.
The services sector of the economy may be losing its footing. In June, the ISM Services Index fell by 5.0 points to 48.8, indicating a contraction.
The causes of weakness were also diverse and somewhat concerning. The Business Activity Index, a measure of current conditions, fell by nearly 12 points. While this is likely due to payback from a reading above 60 in May, the index value below 50 (49.6) for June is not a positive development.
The mood music is changing, but I believe the overall ISM overestimates the current weakness. The select respondent comments in the release struck a cautious tone and generally mentioned slower or softer activity than a month or year ago, but there is little evidence that the tide is turning quickly.
An optimist viewing this release sees much of what the Fed is fighting for. Service-sector activity is slowing, resulting in a moderating labour market and, ultimately, lower inflation.
The services sector of the economy may be losing its footing. In June, the ISM Services Index fell by 5.0 points to 48.8, indicating a contraction.
The causes of weakness were also diverse and somewhat concerning. The Business Activity Index, a measure of current conditions, fell by nearly 12 points. While this is likely due to payback from a reading above 60 in May, the index value below 50 (49.6) for June is not a positive development.
The mood music is changing, but I believe the overall ISM overestimates the current weakness. The select respondent comments in the release struck a cautious tone and generally mentioned slower or softer activity than a month or year ago, but there is little evidence that the tide is turning quickly.
An optimist viewing this release sees much of what the Fed is fighting for. Service-sector activity is slowing, resulting in a moderating labour market and, ultimately, lower inflation.