Economic activity in the services sector contracted in June for the second time in the last three months, according to the Institute for Supply Management (ISM)’s latest Report On Business. The Services PMI registered 48.8%, indicating sector contraction for the third time in 49 months.

The report was issued by Steve Miller, chair of the ISM services business survey committee.

“In June, the Services PMI registered 48.8%, 5 percentage points lower than May’s figure of 53.8%. 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% in December 2022; the last contraction before that was in May 2020 (45.4%),”

The business activity index registered 49.6% in June, which is 11.6 percentage points lower than the 61.2% 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% is 6.8 percentage points lower than the May reading of 54.1%. The employment index contracted for the sixth time in seven months and at a faster rate in June; the reading of 46.1% is a 1-percentage point decrease compared to the 47.1% recorded in May.”

“The supplier deliveries index registered 52.2%, 0.5 percentage point lower than the 52.7% 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% indicates slower deliveries, which is typical as the economy improves and customer demand increases.),” Miller said. “The prices index registered 56.3% in June, a 1.8-percentage point decrease from May’s reading of 58.1%. The inventories index contracted in June registering 42.9%, a decrease of 9.2 percentage points from May’s figure of 52.1%. The inventory sentiment index (64.1%, up 6.4 percentage points from May’s reading of 57.7%) expanded for the 14th consecutive month. The backlog of orders index contracted in June for the first time since March, registering 44%, a 6.8-percentage point decrease compared to the May reading of 50.8%.”

“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 said. “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.”

The eight services industries reporting growth in June — listed in order — are:

• Other services
• Management of companies and support services
• Healthcare and social assistance
• Construction
• Utilities
• Finance and insurance
• Educational services
• Professional, scientific and technical services

The eight industries reporting a decrease in the month of June — listed in order — are:

• Agriculture, forestry, fishing and hunting
• Real estate, rental and leasing
• Mining
• Retail trade
• Public administration
• Wholesale trade
• Transportation and warehousing
• Information