US Services Activity Slows in June as Hiring Picks Up Again, ISM Survey Shows

U.S. services sector growth moderated in June after a temporary rise in business activity linked to increased ordering during the Middle East conflict began to ease, according to data released by the Institute for Supply Management (ISM).

The ISM's nonmanufacturing Purchasing Managers Index (PMI) slipped to 54.0 in June from 54.5 in May. Since a reading above 50 signals expansion, the data indicates that the services sector continued to grow despite the slower pace.

New business orders also softened, with the index declining to 55.1 from 57.3 in the previous month. At the same time, order backlogs increased, suggesting that businesses still have pending work.

The report noted that lower oil prices following the ceasefire between Washington and Tehran helped reduce cost pressures. The services prices-paid index fell to 67.7 from 71.3, although it remained at a level indicating elevated inflation. Economists also pointed to continued investment in artificial intelligence and technology hardware as a factor supporting underlying price pressures.

Supplier delivery times remained longer than usual, with the supplier deliveries index registering 54.4, down slightly from 55.2 in May. While slower deliveries can sometimes reflect strong demand, current supply-chain challenges are not necessarily being driven by higher business activity.

The Atlanta Federal Reserve's GDPNow model estimates the U.S. economy is growing at an annualized rate of 1.2% in the second quarter. The economy expanded at a 2.1% pace during the first quarter, though consumer spending showed signs of slowing.

Despite weaker job gains reported for June and downward revisions to payroll data from earlier months, many economists still expect the Federal Reserve to raise interest rates later this year.