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Economy in Brief

U.S. ISM Services PMI Falls in June to the Lowest Level since May '20
by Winnie Tapasanun  July 6, 2022

• 55.3 in June vs. 55.9 in May, indicating economic activity in the services sector expands for the 25th straight month but at a marginally slower pace.

• Mixed movement in sub-indexes: business activity index rebounds while new orders index declines slightly and employment falls back to a contraction level.

• Prices index at 80.1, while down two pts. from May, remains at an elevated level.

The U.S. ISM Services PMI fell to 55.3 in June from 55.9 in May and 57.1 in April, according to the Institute for Supply Management. The June reading, below the peak of 68.4 in November and 60.7 last June, was the lowest level since May 2020's 45.2. However, the 12-month average was 60.8, reflecting consistently strong growth in the U.S. services sector. The Action Economics Forecast Survey had expected 54.5 for June.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index declined to 55.0 in June, the lowest level since May 2020, from 55.9 last month and 60.7 last June. These series date back to July 1997. During the last 15 years, there has been a 69% correlation between the composite index and the quarterly change in real GDP.

In the latest services survey, the business activity index rebounded to 56.1 in June from 54.5 in May, indicating business activity expansion for 25 consecutive months at a faster pace. Twenty-seven percent (NSA) of respondents reported higher activity this month, marginally down from 27.1% in May. A lessened 12.5% reported an activity decline, down from May's 13.3%. The new orders index declined to 55.6 after rising to 57.6. Twenty-eight (NSA) of respondents reported more orders while 14.0% reported a decline. The employment index fell back to a contraction-level 47.4, the lowest level since July 2020, from 50.2. Twenty percent (NSA) of respondents indicated higher employment, but 19.5% reported it lower. The percentage indicating that employment held steady rose to 60.1% of respondents. The supplier deliveries index (NSA) rose to 61.9 in June after falling to 61.3 in May. A marginally improved 5.0% of respondents reported faster delivery speeds while an increased 28.8% reported slower speeds.

The prices index fell to a still-elevated 80.1 in June, the second straight monthly fall to lowest level since September, from 82.1 in May and a record 84.6 in April; however, it was up from 78.8 last June. Sixty-six percent (NSA) of respondents reported price increases while 1.7% reported price decreases. A higher 32.2% reported stable prices this month vs. 26.8% in May.

The new export orders index fell back to a four-month-low 57.5 in June from 60.9 in May, indicating expansion in new export orders for the fifth successive month but at a slower pace. The backlog of orders index rebounded to a three-month-high 60.5 from 52.0. The inventories index decreased to 47.5, the lowest level since December, from 51.0. This also indicated that inventories contracted in June following four consecutive months of expansion and eight straight months of contraction. The imports index fell to 46.3 in June from 52.8 in May, showing the second contraction this year (first in March, 45.0). These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM figures are available in Haver's USECON database, with additional detail in the SURVEYS database. The expectations figure from Action Economics is in the AS1REPNA database.

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