U.S. Services Activity Weakened in June as Costs Keep Biting

By Joshua Kirby

The U.S. services sector unexpectedly declined in June, suggesting a wider cooling in the economy.

The Institute for Supply Management's services-activity index decreased to 48.8 from 53.8 in May, according to the survey released Wednesday. The fall was sharper than economists had expected, according to a poll by The Wall Street Journal, and takes the index below the 50 mark that divides expansion from contraction for the second time in three months.

"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," said Steve Miller, chair of the ISM services business-committee.

"Survey respondents report that, in general, business is flat or lower," Miller said.

New orders fell sharply compared with a month earlier, the survey showed, pointing to weak demand against a backdrop of still-high inflation and interest rates. The gauge of prices continued to rise in June, albeit at a slower rate than in May.

"Although inflation is easing, some commodities have significantly higher costs," Miller said.

Costs have stabilized but are still higher, said one respondent, active in the construction sector.

"The company is holding steady to see what the election will hold," the respondent said.

June's drop suggests the services sector is beginning to fall into line with weakness in manufacturing, which is similarly struggling with weak demand, according to an ISM survey set out earlier this week.

Write to Joshua Kirby at [e-mail]; @joshualeokirby

(END) Dow Jones Newswires

07-03-24 1042ET