U.S. Services Demand Picks Up
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Demand for services rose in the U.S. as non-manufacturing activity increased slightly, as many analysts expected.
In June, the Institute of Supply Management’s non-manufacturing index rose to 56%, up from 55.7% in May in a sign that demand for services continued to increase in America. The ISM noted that the reading indicated “continued growth” in the economy, with the gains driven by more business activity and new orders.
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Demand for services rose in the U.S. as non-manufacturing activity increased slightly, as many analysts expected.
In June, the Institute of Supply Management’s non-manufacturing index rose to 56%, up from 55.7% in May in a sign that demand for services continued to increase in America. The ISM noted that the reading indicated “continued growth” in the economy, with the gains driven by more business activity and new orders.
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The ISM’s Business Activity Index rose to 61.5%, a full 2 percentage points above the May reading, and helping the index to see 71 months of consecutive gains. At the same time, the New Orders Index rose to 58.3%, up 0.4 percentage points from the prior month as more businesses ordered more inventory on the expectation of greater demand in the future.
However, despite the increase in demand, employment saw a surprising decline, with the Employment Index component of the Non-Manufacturing Index sliding to 52.7%, down 2.6 points from May. Prices also fell 2.9 percentage points.
3% GDP Growth
According to the ISM, the most recent reading indicates that the U.S. economy is seeing accelerating growth and could see GDP growth breach 3% for the first time since the financial crisis began in 2007. According to Anthony Nieves, Chair of the ISM, the index suggests 3.1% GDP growth annualized is likely, even after many Federal Reserve GDP estimates have been modest.
“The past relationship between the NMI and the overall economy indicates that the NMI for June (56 percent) corresponds to a 3.1 percent increase in real gross domestic product (GDP) on an annualized basis,” Nieves said in a statement.
The only impairment to growth was in supplier deliveries, which slowed, and in imports, which contracted slightly in June. After expanding in May, the June index saw imports fall to 48.0; a reading below 50 indicates contraction, meaning that the U.S. is importing fewer services than it did previously.
Weak Price Growth
Despite solid expansion in demand from businesses, price growth was low in June, falling from 55.9 in May to 53 in June. While that suggests that the U.S. is not seeing deflation in the price of non-manufacturing products, there is the possibility for a disinflationary trend to take hold.
Most industries were seeing increases in prices, with decreases seen in only a few commodity driven industries, including mining, agriculture, and retail trade. However, white-collar workers may also see pricing pressure for their labor, as profession, scientific and technical services saw prices for non-manufacturing goods decline.
