The ISM index for the service sector showed a larger-than-expected decline in June. According to analysts at Wells Fargo, the pullback in the June ISM Services index from its record high last month is illustrative of the fiscal and reopening tailwinds beginning to fade. They point out bottlenecks show tentative signs of easing and eventually allaying some price pressures, but they warn there is still a long way to go before looking anything like “normal”.
Key Quotes:
“After indicating a record pace of expansion last month, the ISM Services index slipped nearly four points in June. At 60.1, the index is consistent with activity remaining hot this summer, but points to fiscal and reopening tailwinds beginning to ease. The slower pace of services activity in June can be traced in part to weaker growth in current activity (down 5.8 points to 60.4) and new orders (down 1.8 points to 62.1), but supply issues, particularly for labor, continued to restrain the overall pace of growth.”
“The biggest drag on the June's composite reading came from employment. The hiring index fell below the all-important 50 threshold designating expansion, in contrast with the solid pickup in services employment (+642K net jobs) reported in last week's employment report for June.”
“Tight supply continues to give way to increasing input costs for parts, materials and labor. Although the prices paid component slipped 1.1 points to 79.5, June marks the fifth consecutive month in which the index came in north of 70 and the second highest reading since 2008. All but one industry -agriculture – reported higher prices paid during the month.”