Non-manufacturing activity wavered a little in June, growing at a somewhat lesser rate than in May. In all, the services sector posted a reading of 53.3 in June, down from 54.6 in May. Expectations had been for a reading of 53.5. It should be noted that this survey, which is put out by the Institute for Supply Management, a Tempe, Arizona-based trade group, calculates its survey with a dividing line of 50.0. A reading above that point is consistent with an expansion in non-manufacturing activity. A reading below that level suggests a decline in such activity.
This is a critical reading, as non-manufacturing covers the key services sector, which accounts for some 70% of aggregate economic activity. The ISM also puts out a manufacturing survey. In that report, issued last Friday, the industrial sector showed an increase in its rate of expansion in June, and a positive surprise from the lesser rate of growth that had been the consensus forecast. This time around, there was no repeat of this better trend, as the pace of expansion here eased somewhat.
However, there was an overall increase, marking the 19th month in a row in which non-manufacturing activity had stepped up. This improvement largely tracks the trend in the overall economy, which has been growing since mid-2009, following the steepest recession in more than a generation.
Individually, most of the report's components showed moderating rates of growth. Specifically, production increased at a rate of 53.4 in June versus 53.6 in May. New orders, meanwhile, also improved more slowly, coming in at a level of 53.6 last month, down from 56.8 in May. Also, supplier deliveries slowed their rate of growth, as did inventories and prices, with the latter category showing a marked deceleration from 69.6 in May to last month's 60.9 result. That should be viewed as a positive, given the somewhat increasing concerns about inflation. On the other hand, employment ticked up ever so slightly, rising to 54.1 from 54.0 the prior month, while backlogs actually retreated, falling to a subpar reading of 48.5 in June from 55.0 in May.
On a composite basis, last month's reading of 53.3 was the second slowest rate of increase since last August, surpassing only April's 52.8 reading. During the past year, the range of activity has been from a low of 52.8 in both August of 2010 and April of 2011 to a high of 59.7 in February.
Among the growing sectors last month were, surprisingly, real estate, which has been an overall drag on the economy. Also showing gains in June were: rental and leasing; transportation and warehousing; wholesale trade; and professional, scientific and technical services. Two industries reporting contractions in June were finance and insurance; and health care and social assistance.
Finally, respondents in the survey concluded, on average, that business is still up, although some softening has been seen in the past month. Others noted that economic activity continues to be sluggish, while some opine that we have yet to see a real spark that ignites new and invigorated business.
In all, there was little in the report to either shake up the economic optimists or further affirm that we are in some real trouble domestically. On the whole, the late first-half result is consistent with an expansion that is laboring some, but is still on an upward path. It is just that this path is not the strong one that many had been expecting by this point in time.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.