Drop in price growth bodes well for business.
The U.S. service sector should continue to see moderate growth through the end of the year but there are signs there could be a weaker-than-anticipated slowdown that could come this fall, Institute for Supply Management services chair Anthony Nieves told MNI Wednesday.
"The comments show how these companies are feeling and thinking and they are feeling the economy is weakening," he said. "But I would point to the index itself because that is empirical information measuring change month over month."
The ISM services survey increased 1.4ppts to 56.7, increasing more than anticipated in July to a three-month high on firmer business activity and orders. A reading below 50 suggests a contraction.
"We'll stay above that 50 baseline," the ISM services chief said. "We might see sideways movement through the end of the year. I don't think we will see huge spikes up or down and the PMI will stay around where we are right now."
But Nieves conceded growth could still slip by more than anticipated in the next few months. "I think the fall will be the pivotal mark."
"Thinking how the month of September and October looks will be when we start seeing the build up as we get into the holiday season on the retail side," he said. "September's numbers that come out in October is going to tell us how we're going to finish out the year."
"The biggest fear right now is recession," Nieves said, noting continuity of supply as the second biggest headwind for the industry, and adding that those recession fears still could cause future demand to sour even though it is not showing up now in his report. The July ISM report showed new orders increasing 4.3ppts to 59.9.
Some firms polled in the survey improved their outlooks as the price index reading fell below 80 for the first time since September 2021, falling 7.8ppts to 72.3. July's drop was the steepest fall since May 2017. The survey showed 54% of service firms reporting higher prices, down from 75% in April, while over 6% registered lower prices.
"Prices have peaked," said Nieves in an interview with MNI.
The ISM services chair also remained confident in the labor market despite the employment subindex printing below 50, which suggests a contraction. The June report showed employment dropping 2.3ppt to 47.3
Nieves pointed to continued strong labor demand and commented on recent layoffs in the tech industry. "We know that certain companies and industries have had these layoffs but others still cant get enough workers."
Still, Nieves noted the the labor market as a key indicator that can serve as an early sign in the path of the industry. "How employment goes is how this sector goes."