Growth in the U.S. services sector eased in June to a more than two-year low as orders softened amid ongoing hiring challenges and capacity constraints.
The Institute for Supply Management’s gauge of services slipped to 55.3 from May’s 55.9, according to data released Wednesday.
Despite the softening, the index exceeded the median estimate of 54 in a Bloomberg survey of economists and remains above the threshold of 50 that separates expansion from contraction.
While the ISM’s index of new orders dropped two points, a measure of business activity – which parallels the ISM’s gauge of factory production – strengthened.
That suggests demand growth remains firm, albeit more moderate than late last year.
The overall index has declined in six of the last seven months amid decades-high inflation and is down over 13 points from a series peak in November.
A measure of prices paid by service providers for materials slipped in June to a still-elevated 80.1.
“Logistical challenges, a restricted labor pool, material shortages, inflation, the coronavirus pandemic and the war in Ukraine continue to negatively impact the services sector,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.
All 18 services industries reported growth in June, led by mining, management of companies and construction.
The services report follows ISM data last week that showed a measure of U.S. manufacturing activity also hit a two-year low amid lingering supply-side challenges.
A gauge of services employment fell almost 3 points to 47.4, the weakest since July 2020 and signaling contraction.
The index surfaces ahead of the government’s monthly jobs report, which is projected to show payrolls growth cooled in June from the prior month.
Service employers’ difficulty in hiring and retaining workers may explain pickups in lead times and order backlogs.
After slumping the prior two months, the ISM’s measure of unfilled orders jumped 8.5 points in June, the largest one-month advance in more than four years.
The inventories index dropped to the lowest level this year.
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