The Institute of Supply Management (ISM) has now released the June Services Purchasing Managers' Index (PMI). The headline Composite Index is at 55.3 percent, down 0.6 from 55.9 last month. Today's number came in above the Investing.com forecast of 54.3 percent.

Here is the report summary:

(Tempe, Arizona) — Economic activity in the services sector grew in June for the 25th month in a row — with the Services PMI^® registering 55.3 percent, say the nation's purchasing and supply executives in the latest Services ISM^® Report On Business^®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee: “In June, the Services PMI^® registered 55.3 percent, 0.6 percentage point lower than May’s reading of 55.9 percent. This is the lowest reading since May 2020 (45.2 percent). The Business Activity Index registered 56.1 percent, an increase of 1.6 percentage points compared to the reading of 54.5 percent in May. The New Orders Index figure of 55.6 percent is 2 percentage points lower than the May reading of 57.6 percent.

“The Supplier Deliveries Index registered 61.9 percent, 0.6 percentage point higher than the 61.3 percent reported in May. (Supplier Deliveries is the only ISM^® Report On Business^® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index dropped for the second consecutive month in June, decreasing 2 percentage points to 80.1 percent. Services businesses continue to struggle to replenish inventories, as the Inventories Index contracted for the first time since January 2022; the reading of 47.5 percent is down 3.5 percentage points from May’s figure of 51 percent. The Inventory Sentiment Index (46.2 percent, up 1.7 percentage points from May’s reading of 44.5 percent) contracted in June for the fourth consecutive month, indicating that inventories are in ‘too low’ territory and insufficient for current business requirements.”

Nieves continues, “According to the Services PMI^®, all 18 industries reported growth. The composite index indicated growth for the 25th consecutive month after a two-month contraction in April and May 2020. Growth continues — albeit slower — for the services sector, which has expanded for all but two of the last 149 months. The slight slowdown in services sector growth was due to a decline in new orders and employment. The Employment Index (47.4 percent) contracted, and the Backlog of Orders Index grew 8.5 percentage points, to 60.5 percent. Logistical challenges, a restricted labor pool, material shortages, inflation, the coronavirus pandemic and the war in Ukraine continue to negatively impact the services sector.” [Source]

Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows the Non-Manufacturing Composite.

The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 56.1 percent is up 1.6 from a seasonally adjusted 54.5 the previous month.

For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualize the short-term trends.

Theoretically, this indicator should become more useful as the time frame of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.

Here is a table showing the trend in the underlying components.

Here is a link to our coverage of the latest ISM Manufacturing report.

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