Implications:  The ISM Services index’s brief one-month stint below 50 in May proved to be short-lived, as the index beat expectations and returned to expansion territory (albeit barely) at 50.8 in June.  It’s important to remember that Purchasing Manager’s surveys like the ISM Services index and its counterpart on the manufacturing sector often capture sentiment mixed in with actual activity.  Given the recent weak readings from both, we don’t know whether this is the front end of a much slower economy, or just a sign that uncertainty from U.S. trade policy and, more recently, the conflict in the Middle East, are impacting sentiment and temporarily holding things back.  Looking at the details of the report, new orders and business activity were responsible for the slight increase to the overall index, both climbing back into expansion territory at 51.3 and 54.2, respectively. Uncertainty from trade policy, high interest rates, and rising tensions in the Middle East are all said to be delaying activity and investment.  Service companies – once hamstrung with difficulty finding qualified labor – are now taking a cautious approach with their hiring efforts, as the employment index dropped to 47.2 in June, the third contraction in four months, with nearly twice as many industries (nine) reporting lower employment in June versus higher (five). The highest reading of any category was once again the prices index, which declined to 67.5 in June from 68.7 in May. Besides last month, that’s the highest level since late 2022, but still far from the worst we saw during the COVID supply-chain disruptions, when the index reached the low 80s. Though inflation pressures remain – the M2 measure of the money supply is barely up versus three years ago – which means we are likely to see lower inflation and growth in the year ahead.

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