The Econoday US service sector activity index (ESSAI)* for June falls to minus 6.3 from minus 3.3 in May and minus 2.1 in April. Four of the six regional component surveys for the service sector show lower readings in June from May and two are up. However, half of the surveys show conditions actually contracting in a range from slight to severe and half reflect modest expansion. The service sector in June is likely reflecting caution on the part of consumers and other businesses as higher costs drive budgets to essentials from nondiscretionary spending.
Input prices in June are not rising as quickly for the service sector as for manufacturing but the pass-through from the producer level is not over. The Econoday service sector prices paid index (ESSPPI)# slips to 38.3 in June from 39.8 in May but is still well above 35.2 in March.
The separate Econoday factory sector employment index (ESSEI)## gains to 4.7 in June after 0.3 in May and minus 1.4 in April. June hiring in the service sector probably results from leisure and hospitality as the summer vacation season approached.
The ESSAI has good correlations** with the major national indexes for activity in the service sector.
The S&P services purchasing managers index had a flash reading of 51.3 for June, up a bit from the final 50.7 in May and 51.0 in April. The index generally sees only minor revisions from the flash to the final report. The S&P index is taken later than the regional surveys and is likely the more accurate perception of current conditions for the service sector.
The final S&P services purchasing managers index for June is set for release at 9:45 ET on Monday, July 6.
The ISM services index was higher at 54.5 in May from 53.6 in April and 54.9 in March. Conditions in the service sector had been improving since the drop to 54.0 in March after 56.1 in February. The start of the war on Iran on February 28 clipped activity in the service sector as businesses assessed events.
The ISM services index for June is set for release at 10:00 ET on Monday, July 6..
*The ESSAI is an average of seasonally adjusted indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The districts correspond with about 48 percent of the US labor force. An index above 0 indicates expanding activity and below 0 indicates contracting activity.
**S&P PMI for services index correlation 0.754, ISM services index 0.747.
#The ESSPI is an average of unadjusted indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The ESSPI has a correlation of 0.841 with the ISM services prices paid index.
##The ESSEI is an average of seasonally adjusted employment indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The index has a correlation of 0.756 with the ISM services index.
