Chart of the day: Service sector grows at slowest pace in two years

The service sector continued to moderate, despite the current shift from spending on goods to services. Higher inflation, mostly from energy and food prices, kept consumers away from spending more on discretionary services.

The Institute for Supply Management’s service index inched down to 55.3 in June, the slowest level of growth in more than two years since May 2020, when it was at 45.2.

The index indicates an overall expansion only when it is above 50.1. Despite being on a 25-month streak of growth, the index has come closer to showing overall contraction.

Service PMI

The slowdown continued to be driven by lower new orders—a proxy for future demand—which fell to 55.6 from 57.6 in May. On top of that, there were three components that fell to contraction territory from expansion in June: employment, inventories and imports.

Lower inventories and imports were likely because of the COVID-19 lockdown in China and supply-chain bottlenecks.

“The shutdowns in China due to the zero-COVID policy have adversely impacted our supply chain,” one respondent in the health care industry said.

Inflation remained a challenge as higher prices have forced consumers to spend more on essentials while staying away from discretionary service spending such as retail. The prices paid component declined slightly to 80.1 from 82.1 on the month, staying elevated.

The takeaway

We expect the service sector to continue to grow in the coming months, yet at a slower pace as economic activities slow while energy and food prices remain high.

Let’s Talk!

Call us at (325) 677-6251 or fill out the form below and we’ll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Tuan Nguyen and originally appeared on 2022-07-06.
2022 RSM US LLP. All rights reserved.
https://realeconomy.rsmus.com/chart-of-the-day-service-sector-grows-at-slowest-pace-in-two-years/

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.