S&P Global US Services PMI and the ISM Services PMI were both released today with contradictory readings on the service side of the US economy.
S&P Global
The S&P Global US Services PMI rose to 55.3 in June of 2024 from 54.8 in the previous month, revised higher from the preliminary estimate of 55.1 and firmly above the earlier market expectations of 53.7 to reflect the sharpest expansion in services sector activity since April of 2022. The data contrasted slightly with recent indicators suggesting that economic activity in the US was moderating, adding leeway for the Fed to maintain rates at a restrictive territory if inflation does not slow. Inflows of new work rose at the sharpest pace in a year during the period, resulting in an expansion in output. In the meantime, employment levels increased the most in five months to rebound from drops in the second quarter, as firms aim to increase the capacity and halt the recent expansion of outstanding work. On the price front, input inflation fell to a five-month low. Source: Trading Economics and S&P
ISM
The ISM Services PMI in the US tumbled to 48.8 in June 2024, the sharpest contraction since April 2020. Markets were expecting 52.5 after 53.8 in May. The Business Activity Index also fell, registering 49.6, the first contraction since May 2020. New orders (47.3 vs 54.1) and employment (46.1 vs 47.1) declined. “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.”, said Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management.
Comment
The divergence between the two reports is hard to reconcile. There are differences in how the data is collected, mostly that S&P surveys a wider range of sizes of businesses. The ISM survey is mainly confined to larger companies. But the contrast between the reports is extreme with S&P’s showing a large increase in services activity while the ISM report is consistent with contraction in the overall economy (reading under 49).
With the manufacturing versions of these reports, the S&P version turned down first and appears to be turning up first as well. The differences in the services surveys has not been a wide until now so we don’t have much in the way of insight about what this means. We believe the economy is slowing but don’t think, based on the body of evidence available, that the economy is actually contracting.
