US services activity contracts unexpectedly as orders shrink

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WASHINGTON, D.C. ― US services sector activity shrank unexpectedly in June due in part to a pullback in new orders and employment, according to survey data released on Wednesday.

The Institute for Supply Management’s (ISM) services index came in at 48.8 percent last month, notably lower than May’s 53.8-percent figure.

While analysts expected the index to tick down, they did not forecast a contraction ― meaning a reading below the 50-point threshold.

Analysts noted that the current level is the lowest since May 2020, and the indicator could be a signal that the world’s biggest economy is cooling on the back of high interest rates.

“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 ISM survey chairman Steve Miller.

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The latest figure marks the second contraction in three months.

“Survey respondents report that in general, business is flat or lower, and although inflation is easing, some commodities have significantly higher costs,” Miller added.

The business activity index slumped to 49.6 percent in June from 61.2 percent in May.

The new orders index shrank for the first time since December 2022, according to ISM.

Meanwhile, the employment index contracted for a sixth time in seven months, the report noted.

“Costs seem to have stabilized but are still higher. The company is holding steady to see what the election will hold,” said a survey respondent in the construction sector.

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