According to the US ISM business report for June released on Wednesday (3rd), the American service industry experienced the fastest contraction in four years last month due to shrinking business activities and decreasing orders.
The latest data from the Institute for Supply Management (ISM) shows that the June Purchasing Managers’ Index (PMI) for the service industry dropped by 5 percentage points from May to 48.8%. This marks the second contraction in the past three months.
A PMI below 50 indicates economic contraction, and the June index significantly undershot the predictions made by Bloomberg economists.
Key points from the ISM June business report include:
– The Business Activity Index plummeted to 49.6% from 61.2% in May, marking a sharp decline of 11.6 percentage points and the largest drop since April 2020.
– The New Orders Index decreased to 47.3% from 54.1% in May, the first contraction in service provider orders since December 2022.
These figures represent a stark and sudden reversal compared to May when the overall index reached a nine-month high.
The Employment Index stood at 46.1%, down 1 percentage point from May, marking the sixth contraction in seven months, with the pace of contraction accelerating in June.
Steve Miller, chairman of the ISM Services Business Survey Committee, noted in the business report that the deterioration of various indices in the service industry for June further indicates signs of insufficient momentum in the US economy.
Data released on July 3 by the Atlanta Federal Reserve Bank’s GDPNow model predicts a 1.5% growth rate in the actual Gross Domestic Product (GDP) for the second quarter of 2024, down from the July 1 prediction of 1.7%.
Coupled with the third consecutive month of contraction in the ISM Manufacturing Index announced earlier this week, the survey of service providers by the organization indicates weak demand due to high borrowing costs, slowing business investments, and uneven consumer spending.
Meanwhile, the Prices Index for materials purchased by service providers stood at 56.3% in June, down 1.8 percentage points from May’s 58.1%, marking a three-month low for the price index, signaling a gradual easing of inflation.