US services sector falls in June on fall in orders

WASHINGTON (Reuters) – U.S. services sector activity fell to a four-year low in June on a sharp decline in orders, suggesting the economy lost momentum late in the second quarter.

The Institute for Supply Management said its non-manufacturing purchase managers index (PMI) fell to 48.8 last month, its lowest level since May 2020, from 53.8 in May. It was the second time this year that the PMI fell below 50, indicating a recession in the services sector.

Economists polled by Reuters had forecast the services PMI would fall to 52.5. The PMI fell below the 49 level that the ISM generally indicates over time that the economy as a whole is expanding. The survey’s measure of business activity fell to 49.6, its first decline since May 2020, from 61.2 in May.

ISM said on Monday that manufacturing activity deteriorated further in June.

But the surveys likely understate the economy, as so-called hard data, such as consumer spending, suggest a moderate pace of growth in the last quarter. The economy is adjusting to higher interest rates that are slowing demand.

Growth estimates for the second quarter are around 2% annualized. The economy grew at 1.4% in the January-March quarter.

The survey’s new orders index fell to 47.3, its lowest level since December 2022, from 54.1 in May. Employment in services continued to fall. That would suggest weaker job growth in the coming months, although sentiment surveys were not reliable forecasts for wage growth.

The government’s closely watched jobs report on Friday is likely to show that nonfarm payrolls rose by 190,000 in June after rising by 272,000 in May, according to a Reuters poll of economists. The jobless rate is forecast to be unchanged at 4%.

Services inflation slowed slightly last month. The ISM measure of prices paid for services inputs fell to 56.3 from 58.1 in May, suggesting the disinflationary trend was back on track after price pressures picked up in the first quarter.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)