The Institute for Supply Management's non-manufacturing index (NMI) fell below expectations, down 3.5 points to 48.2 in June. The subcomponents confirmed the headline weakness as business activity, new orders and employment all contracted last month. Despite the slowdown, service sector activity likely added to Q2 real GDP growth.
Labor Picture Remains Dim
- The trend in service sector activity continues to slow.
- The employment index contracted again last month - consistent with today's -62K nonfarm payroll reading. While some of the hardest hit sectors of the economy continue to displace workers, we have not seen the large monthly declines that are typically seen during a recession.
Prices Remain Problematic
- The prices paid index jumped 7.5 points to a record 84.5 in June. At this level, prices paid are a major concern and will pressure profit margins for some time.
- The NMI averaged 50.6 in Q2 versus 47.8 in Q1 suggesting the current economic slowdown is not intensifying. Q2 real GDP growth should come in around +2.0 percent.