The June ISM non-manufacturing index released by the United States on Wednesday (6th) was 55.3, which was better than the market expectation of 54.3 and slightly lower than the 55.9 in May. Although the index was still firmly above the 50 line of prosperity and decline, it has The three-month decline was the lowest since May 2020, mainly due to challenges in employment, continued capacity constraints and reduced orders.
In addition, the employment index fell to 47.4 from the previous value of 50.2, hitting a new low since July 2020 and the third time the index fell below 50 this year, indicating signs that labor demand may slow down or continue to be in short supply.
June U.S. ISM non-manufacturing index breakdown:
- The business activity production index was reported at 56.1, the previous value was 54.5
- The new orders index was reported at 55.6, the previous value was 57.6
- The employment index was reported at 47.4, the previous value was 50.2
- The supplier delivery index was reported at 61.9, the previous value was 61.3
- The inventory index was at 47.5, the previous value was 51.0
- The price index of raw materials was reported at 80.1, the previous value was 82.1
- The index of outstanding orders was reported at 60.5, the previous value was 52.0
- The new export orders index was reported at 57.5, the previous value was 60.9
- The raw material import index was reported at 46.3, the previous value was 52.8
- The inventory climate index was at 46.2, the previous value was 44.5
Looking at the details of the data, the June employment index fell to 47.4 from 50.2 in May, entering recession territory and the lowest level since July 2020. This is the third time the index has fallen below 50 this year, a decline that points to signs that labor demand may be slowing or a persistent shortage.
The new orders index for June came in at 55.6, down 2 percentage points from May, but the production index for business activity rose to 56.1 in June from 54.5 in May, suggesting demand growth remained strong, albeit at a slower pace from late last year.
The supplier deliveries index edged up to 61.9 in June from 61.3 in May. While service sector inflation continues to pick up, there are signs that it may have peaked, with the raw materials price index falling to 80.1 in June from 82.1 in May, the lowest level since September 2021.
As demand for goods cools, services prices are key to determining when inflation falls. The ISM non-manufacturing index has slumped for six months, down nearly 14 percentage points from its streak of highs in November, as decades of high inflation struggled to cool.
Anthony Nieves, chairman of the ISM Services Sector Survey Committee, said factors such as logistical challenges, limited labor, shortages of raw materials, high inflation, COVID-19, and the Russian-Ukrainian war continued to have a negative impact on the services sector.
Overall, the report does not bode well for the June nonfarm payrolls report due on Friday (7th), but employment growth remains strong even in the months when the ISM indicator has contracted.
Job openings for JOLTs in May fell sharply to 11.25 million in May from an upwardly revised 11.68 million in April, the Bureau of Labor Statistics said on the same day, but still better than the 11.04 million job openings forecast in a FactSet poll of analysts.
