Service Sector Reports Show Solid Economic Growth

The services PMI ended June at the mid-month flash reading, at 56.5 for a small 3 tenth dip from May to signal very solid growth for the bulk of the U.S. economy. New orders remain strong but did slow slightly in June while backlogs are at 3-year high.

Cost inflation continues to rise at a 5-year high which the report attributes to supplier shortages and recently introduced tariffs as well as a hike for fuel. At least some of this pressure is being passed through to customers as selling prices rose at one of the fastest rates over the last 2 years. And in a positive signal for tomorrow's employment report, hiring in the services sample during June was the second fastest in 3 years.

This report has been running a little less hot than the ISM non-manufacturing survey which tracks not only services but mining and construction as well. The ISM report follows at 10:00 a.m. ET this morning. Note these results together with last week's manufacturing PMI, which came in at 56.8, make for a modest dip in the PMI composite to 56.2 vs 56.6 in May.

...meanwhile...

Business continues to boom for ISM's non-manufacturing sample where the headline composite just tops Econoday's consensus range at 59.1 in June. And forecasts for July may be bumped up given an outstanding showing for new orders, at 63.2 for a 1.7 point gain that was fed by strong acceleration in export orders, up 3 points to 60.5 and showing no drag from tariff talk (which has so far been centered in goods, not services). The build in backlog orders did slow slightly, down 4 points from May, but remains very strong at a 56.5 level that points to the need for production and employment increases ahead.

The report's employment index for June came in at 53.6 which is down 1/2 point and isn't pointing to acceleration for tomorrow's payroll data. Other readings include improvement in delivery delays, a slowing inventory build, and a little less heat for input prices -- all welcome outcomes that reduce the risk of overheating for this sample.

But comments from the sample remain very heated, centered on tariff worries and tariff effects as well as trouble in shipping especially a lack of truckers. All 17 sectors show growth led in the month by the report's two non-service sectors: mining and construction.

The pace of this report is very strong and the slight cooling in the supply chain readings points to sustainably for a sample that continues to show steady and outstanding strength.