US Services Activity Softens, Jobs Growth Improves
Synopsis
The services sector expanded at a slower pace in June, with hiring recovering despite weaker new orders and persistent inflation pressures.
Key Highlights
- US service sector growth in June dropped to 54.0 from 54.5 in May.
- The employment index rose to 51.2 from 47.9, the first expansion since February, in a further sign of a US hiring bounce as services firms responded to increased demand for jobs.
- The report strengthened the view that the low-hire, low-fire trend for the US labour market remains intact while keeping the Federal Reserve on a cautious path.
The US services sector activity fell to 54.0 from May’s 54.5, whilst the employment subindex soared to 51.2 from 47.9, returning to expansion for the first time since February. So on a net basis, the data point to a resilient US labour market supporting expectations that the Fed is not going to hurry into rate cuts which will be an important market-indicative event for Aussie investors attuned to global interest rates.
New orders ease Middle East Demand
New orders fell to 55.1 in June from 57.3 in May, as businesses cut back on purchases after Middle East tensions eased according to the Institute for Supply Management (ISM).
The declaration follows a ceasefire agreement between Washington and Tehran, enabling oil prices to fall back towards pre-conflict levels and easing the urgency for businesses to place orders observed during the conflict.
Inflation Coola But Fed Remains Watchful
The prices paid index fell to 67.7 in June from 71.3 in May as lower oil prices provided some relief to inflationary pressures. But inflation was still high and semiconductor and electronics prices were rising with continued investment in artificial intelligence.
Supplier delivery times also continued to ease, as the deliveries index eased from 55.2 to 54.4 in May indicating supply chain constraints remain a headache for firms.
The Fed rate cut services inflation outlook position yet remains with the report bolstering this view. Although inflation has come down, economists still expect the Federal Reserve to maintain higher borrowing costs this year.
Based on considerably higher-than-expected wage growth numbers leading off today, the Atlanta Federal Reserve currently sees the US economy growing at only a 1.2% annualised pace in Q2. The Fed held steady at 3.50% - 3.75% last month in recent weeks, however, later data indicate that the disinflationary process is not over yet with inflation remaining stubborn as the cause of existence.
Source: Reuters
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