Services PMI^® at 48.8%

June 2024 Services ISM^® Report On Business^®

Business Activity Index at 49.6%
New Orders Index at 47.3%
Employment Index at 46.1%
Supplier Deliveries Index at 52.2%

(Tempe, Arizona) — Economic activity in the services sector contracted in June for the second time in the last three months, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®. The Services PMI^® registered 48.8 percent, indicating sector contraction for the third time in 49 months.

The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee: “In June, the Services PMI^® registered 48.8 percent, 5 percentage points lower than May’s figure of 53.8 percent. The reading in June was a reversal compared to May and the second in contraction territory in the last three months. Before April, the services sector grew for 15 straight months following a composite index reading of 49 percent in December 2022; the last contraction before that was in May 2020 (45.4 percent). The Business Activity Index registered 49.6 percent in June, which is 11.6 percentage points lower than the 61.2 percent recorded in May and the first month of contraction since May 2020. The New Orders Index contracted in June for the first time since December 2022; the figure of 47.3 percent is 6.8 percentage points lower than the May reading of 54.1 percent. The Employment Index contracted for the sixth time in seven months and at a faster rate in June; the reading of 46.1 percent is a 1-percentage point decrease compared to the 47.1 percent recorded in May.

“The Supplier Deliveries Index registered 52.2 percent, 0.5 percentage point lower than the 52.7 percent recorded in May. The index remained in expansionary territory — indicating slower supplier delivery performance — in June for a second month after three straight months in ‘faster’ territory. (Supplier Deliveries is the only ISM^® Report On Business^® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index registered 56.3 percent in June, a 1.8-percentage point decrease from May’s reading of 58.1 percent. The Inventories Index contracted in June registering 42.9 percent, a decrease of 9.2 percentage points from May’s figure of 52.1 percent. The Inventory Sentiment Index (64.1 percent, up 6.4 percentage points from May’s reading of 57.7 percent) expanded for the 14th consecutive month. The Backlog of Orders Index contracted in June for the first time since March, registering 44 percent, a 6.8-percentage point decrease compared to the May reading of 50.8 percent.

“Eight industries reported growth in June. Though the Services PMI^® contracted for the second time in three months, that was preceded by 15 consecutive months of growth, a contraction in December 2022 and 30 months of expansion before that. That indicates sustained growth for the sector, as the PMI^® has not recorded back-to-back months in contraction since April and May 2020.”

Miller continues, “The decrease in the composite index in June is a result of notably lower business activity, a contraction in new orders for the second time since May 2020 and continued contraction in employment. Survey respondents report that in general, business is flat or lower, and although inflation is easing, some commodities have significantly higher costs. Panelists indicate that slower supplier delivery performance is due primarily to transportation challenges, not increases in demand.”

INDUSTRY PERFORMANCE

The eight services industries reporting growth in June — listed in order — are: Other Services; Management of Companies & Support Services; Health Care & Social Assistance; Construction; Utilities; Finance & Insurance; Educational Services; and Professional, Scientific & Technical Services. The eight industries reporting a decrease in the month of June — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Mining; Retail Trade; Public Administration; Wholesale Trade; Transportation & Warehousing; and Information.

WHAT RESPONDENTS ARE SAYING

• “Sales and traffic remain soft compared to last year. High gas prices in California and constant news about inflation and restaurant menu prices are culprits.” [Accommodation & Food Services]
• “Costs seem to have stabilized but are still higher. The company is holding steady to see what the election will hold.” [Construction]
• “Currently, our operations are normal, but we are experiencing slightly higher costs due to the increase in fuel. We are at the end of our fiscal year, when an increase in expenditures is typical.” [Educational Services]
• “Steady, with no major shifts in pricing or availability of services.” [Finance & Insurance]
• “Demand for services has moderated after near-record patient levels in the last month.” [Health Care & Social Assistance]
• “We are still experiencing supply chain challenges with the increased cost of chemicals, as well as the domestic and overseas freight costs associated with them.” [Management of Companies & Support Services]
• “Slightly higher prices across the board, but less pricing pressure for some items. Still long lead times for heavy equipment, fire apparatus, ambulances and the like.” [Public Administration]
• “Inflation continues to be a general concern for both purchasers and sellers. For example, with inflation continuing, will customers have enough discretionary funds to spend?” [Retail Trade]
• “Supply issues have calmed down. Prices on many products remain high, with no sign of decreases.” [Utilities]
• “Market seems to be slowing in June. This is complicated by increased ocean freight rates and tight container bookings.” [Wholesale Trade]

ISM^® SERVICES SURVEY RESULTS AT A GLANCE COMPARISON OF ISM^® SERVICES AND ISM^® MANUFACTURING SURVEYS*
JUNE 2024