Service Sector Reports Show Moderate To Much Stronger Growth

New orders picked up but only to a moderate pace for Markit Economics' U.S. service sector sample where the final PMI for June came in at 51.4, little changed from 51.3 readings for both the June flash and May final. New orders are at their best reading of the year but are still below trend. And backlog orders continue to decline, down now for 11 straight months. Firms in the sample are hiring but not very much with job growth at a 17-month low. Optimism in the general outlook, down four of the last five months, is at a survey low. Price data are muted despite the rise in fuel costs. The bulk of the U.S. economy is chugging along at marginal rates of growth heading into Brexit fallout.

...meanwhile...

ISM's non-manufacturing sample is reporting its strongest rates of growth of the year, headlined by a big 3.2 point jump in the composite index to 56.5. New orders are even further above break-even 50 at 59.9 with new export orders up 4 points to 53.0. Employment is also up, 3 points higher at 52.7 in a reading that hints at sizable improvement for Friday's employment report.

Deliveries are slowing which is a sign of rising demand and inventories are rising in what perhaps hints at restocking and new confidence in the outlook. Business activity, which is a measure of production, is also very strong, at 59.5 which points to strength for the June economy. To keep production up in the month, the sample worked down its backlogs which are in contraction for the first time in more than a year. But the rise in new orders should help fill backlogs back up while the strength in exports underscores global demand for the nation's technical and managerial services.

This report is well established and historically is not volatile which makes June's gains impressive. The gains suggest that the bulk of the nation's economy, in contrast to the subdued indications from the services PMI released earlier this morning, may very well be picking up steam heading to the Brexit fallout.

Recent History Of This Indicator:
The ISM non-manufacturing index for June is expected to recover only some of its decline during May when the index fell unexpectedly to 52.9 or roughly 2 points below trend. The employment index, falling more than 3 points to 49.7 in May, was in line with what proved to be a very weak employment report from the government in May. New orders in May did slow by nearly 6 points but at 54.2 were still respectable which is a positive for the June report. The Econoday forecast for June is 53.3.