US Services Cools
US Services Sector Expands for 24th Month Amid Moderating Growth, Easing Inflation.
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Key Points
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Backlogged orders still increased, suggesting demand has not dissipated but is returning to a normal pace as the pull-forward effect fades.
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ISM June services PMI subindices show a mixed but expanding picture: Business Activity 56.3, New Orders 53.5, and Employment 53.1, indicating continued expansion at a moderated pace.
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Prices index eased further in June, with the Prices Index at 56.8 (down from 58.1), signaling easing inflation pressure in the services sector.
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S&P Global services PMI rose to 51.2 in June, signaling expansion above 50; S&P Global's Chris Williamson noted that June conditions improved from the prior month, but the pace of expansion remains below earlier levels, with second-quarter growth around 1.2% annualized.
The U.S. services sector expanded for the 24th straight month in June, with the ISM Services PMI coming in at 54.0 — any reading above 50 signals growth Industry Today. The number slipped slightly from 54.9 in May, marking the third decline in four months, but the sector remains solidly in expansion territory Haver Analytics.
A separate survey from S&P Global put its services PMI at 51.2 in June, up slightly from the prior month BigGo Finance. Together, the two reports paint a picture of a services economy that keeps growing — just not as fast as before.
Key Subindices Show Steady But Slowing Growth
Inside the ISM report, the three main subindices all stayed above 50, meaning they all showed growth. Business Activity came in at 56.3, New Orders at 53.5, and Employment at 53.1 MEXC. Each number points to expansion, but at a more moderate pace than earlier this year.
The employment index is notable because it flipped back into expansion after briefly contracting in May Finance Commerce. That means services businesses added workers in June. It suggests job growth in the sector is stabilizing, not falling apart.
Inflation Pressure in Services Continues to Ease
The Prices Index dropped to 56.8 in June, down from 58.1 in May Haver Analytics. It is still above 50, so prices are still rising. But the direction is good news. Slower price growth in services is exactly what the Federal Reserve wants to see before cutting interest rates.
Services inflation has been one of the stickiest parts of the broader inflation problem. A reading that keeps edging lower gives policymakers more room to act. Investors are likely to take the easing prices index as a mild positive signal for future rate cuts.
Demand Holds Up Even as the Growth Pace Normalizes
New orders slowed to 53.5, but backlogged orders still increased BigGo Finance. That is an important detail. It means demand has not disappeared — businesses are just working through a more normal pace of incoming work after a strong stretch.
S&P Global's Chris Williamson noted that second-quarter growth is tracking around 1.2% annualized — a modest pace BigGo Finance. That lines up with the ISM data. The services sector is not booming, but it is not slowing sharply either.
What Two Years of Expansion Means for Policy
Two full years of services growth is a meaningful streak. The sector makes up the largest share of the U.S. economy, covering everything from restaurants to finance to healthcare. Its continued expansion has helped keep the broader economy out of recession Industry Today.
But the cooling trend gives the Fed reason to stay cautious. Growth is real, but it is moderating. Prices are easing, but they are not back to target. The mixed signals point to a "wait and see" approach — rate cuts possible, but not yet certain Haver Analytics.
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