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SOFT SERVE: SERVICES SECTOR LOSES SOME OOMPH

Investors staggered back from their holiday weekend barbeques on Monday to discover that the U.S. services sector continued to chug along in expansion territory in June, but with a shade less momentum than in the month prior.

The Institute for Supply Management's (ISM) non-manufacturing PMI USNPMI=ECI dropped 0.5 points in June to land at an even 54, hitting the consensus bull's eye.

In PMI land, the magic number of 50 is the divider between monthly contraction and expansion. A number north of 50 indicates expansion.

A closer gander at the index's subcomponents shows new orders and production dipped by 2.2 points and 2.3 points, respectively. Employment strengthened, jumping 3.3 points to a 51.2, its first month in expansion territory since February.

Just a reminder, services jobs typically account for around 80% of monthly private sector payrolls gains. In fact, 79.6% of June's private sector job adds were classified as service-providing, according to the Labor Department.

Inventories plunged 11.3 points to a still-expansive 51.2 as front-loading due to war-related supply concerns began to unwind.

Prices paid—an inflation predictor—cooled down to a still-elevated 67.7. This component has now been north of 60 for a year-and-a-half, the longest stretch since COVID shutdowns strangled the supply chain.

Remarks from survey participants are littered with mentions of tariffs, supply chain challenges and war-related price pressures, but the outlook and tone vary widely, industry to industry.

"Respondents in June commented less frequently about pricing impacts on petroleum products, while tariff impacts continued to be a theme for increased pricing pressure," says Steve Miller, chair of ISM's Services Business Survey Committee. "The Inventories Index dropped to its second-lowest level since October 2025, indicating that the buy-ahead phenomenon from earlier in the year may be over."

On the other hand, S&P Global's take on June services PMI USMPSF=ECI, was revised ever so slightly downward, shedding 0.1 points from its advance "flash" take released a couple of weeks ago, settling at a final reading of 51.2.

The number marks a half-point improvement from May's 50.7 final reading.

"The pace of growth remains lacklustre compared to that seen at the start of the year before the (Middle East) conflict," says Chris Williamson, chief business economist at S&P Global. “A key underlying factor behind the relatively subdued performance of the services economy was again elevated price pressures."

"Customer push-back against these high prices was again widely reported, most notably in consumer-facing businesses," Williamson adds.

Taken together with Wednesday's manufacturing PMI, S&P Global's composite reading added some monthly momentum, rising 0.4 points from May's final reading to 51.9.

S&P Global and ISM indexes differ in the weight applied to their various components.

This shows the extent to which the dueling PMIs agree (or not). It would appear they are generally more often in agreement with respect to manufacturing PMI, wider disparities between the two on the services side:

(Stephen Culp)

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