Services Sector Shrinks in June According to New ISM Report

Economic activity in the services sector contracted in June for the second time in the past three months, the country’s purchasing and supply managers say in the latest services report from ISM® On Business®. The services PMI came in at 48.8%, indicating that the sector contracted for the third time in 49 months.

The report was released today by the Chairman of the Services Business Survey Committee at the Institute of Supply Management (ISM):® “In June, the services PMI came in at 48.8 percent, five percentage points lower than May’s figure of 48.8 percent.” The reading in June was a reversal compared to May and the second in the contraction zone in the past three months, and before April, the services sector grew for 15 months in a row after the composite index reading of 49% in December 2022 and the contraction before that was in May 2020 ( 45.4 per cent).

The business activity index came in at 49.6 percent in June, 11.6 percentage points lower than the 61.2 percent recorded in May and the first month of contraction since May 2020. The index of new orders contracted. In June for the first time since December 2022, the figure fell 47.3% by 6.8 percentage points from May’s reading of 54.1%, and the employment index contracted for the sixth time in seven months and at a faster rate in June. The 46.1 percent reading represents a decrease of 1 percentage point compared to the 47.1 percent recorded in May.

The supplier delivery index came in at 52.2 percent, 0.5 percentage points lower than the 52.7 percent recorded in May. The index remained in expansionary territory — suggesting slower supplier delivery performance — in June for the second month after three consecutive months in the “faster” region.

 Impact of the ISM Services Index on Stocks, Bonds and Currencies

Changes in the ISM Services can have varying effects on different asset classes:

Stocks: A positive change or a higher-than-expected ISM Services reading is generally favorable for equities. It points to the expansion of business activity and overall economic growth, which can boost corporate profits and investor confidence. Thus, stock prices may rise in response to a strong PMI reading. Conversely, a negative change or a lower-than-expected PMI reading can lead to concerns about economic weakness, which may It leads to lower stock prices.

Bonds: The impact on bond prices and yields can be more subtle. A stronger-than-expected Services PMI reading may indicate potential inflationary pressures and economic growth, which could lead to higher bond yields. When bond yields rise, bond prices tend to fall. On the other hand, a weaker-than-expected PMI reading may indicate economic weakness, which could push investors towards the relative safety of bonds, pushing bond prices. to rise and fall yields.

Currencies: Changes in the Purchasing Managers’ Index (ISM) for services can affect currency exchange rates. A higher PMI reading compared to PMI data in other countries can strengthen that country’s currency. This points to a stronger services sector and better economic prospects, attracting foreign investment and strengthening the value of the currency. Conversely, a weaker-than-expected PMI reading may lead to currency depreciation as it raises concerns about Economic slowdown or weakness compared to other countries.

It is important to note that the impact of the services purchasing managers’ index (ISM) on different asset classes can be influenced by other factors, such as prevailing market conditions, monetary policy expectations, geopolitical developments and global economic trends. In addition, the correlations between the Purchasing Managers’ Index (PMI) can vary) and asset classes over time and may not always be consistent.

The Importance and Impact of the ISM Services PMI Index on Financial Assets

The five main components used to calculate ISM Services PMI (Purchasing Managers’ Index) are as follows::

Business: This component measures the level of business activity or production in the service sector. It reflects changes in production, orders executed, and overall operational capability.

New orders: This component measures the level of new orders received by companies in the service sector. It provides insight into the demand for services and can signal business activity and future expansion..

Employment: The employment component assesses the level of employment in the service sector. It monitors changes in the number of employees, hours worked and hiring or layoffs within the industry.

Supplier deliveries: This component measures the speed of deliveries from suppliers to companies in the service sector. It refers to supply chain efficiency and can reflect changes in demand, transportation disruptions, or inventory levels.

Prices: The Price component tracks changes in the prices of goods and services in the services sector. It provides insight into inflationary pressures, input costs, and pricing power within the industry.

It is important to note that the impact of the services purchasing managers’ index (ISM) on different asset classes can be influenced by other factors, such as prevailing market conditions, monetary policy expectations, geopolitical developments and global economic trends. In addition, the correlations between the Purchasing Managers’ Index (PMI) can vary) and asset classes over time and may not always be consistent. Traders and investors need to consider a range of factors and conduct a thorough analysis to make informed decisions regarding asset allocation and trading strategies.

These five components are surveyed among purchasing managers in the services sector, and their responses are compiled to calculate the PMI for ISM services for Shamel.

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