MNI INTERVIEW: US Service Growth Resilient, No Recession Signs

The U.S. service sector's growth is likely to continue at least through the next few months as consumer demand is resilient, ISM services survey chair Anthony Nieves told MNI Thursday, adding the overall economy has been stronger than expected in the face of historic Federal Reserve tightening and shows no sign of drifting into recession.

"Looking at what these numbers are now, I think it'll carry through the summer," he said about the ISM Services PMI. "It just kind of looks like it's trending that way."

As the price index eased in June 2.1ppts to 54.1, the lowest reading since the start of the pandemic, the ISM services chief maintained his outlook for moderate services growth near June's four-month high. "I expect sideways movement going forward in the mid-50s, although I don't think we're going to to get any higher than that."

The service sector's continued resilience comes as the outlook for manufacturing appears gloomier. (See: MNI INTERVIEW: US Manufacturing Downturn Not Over - ISM Chief)

The ISM Services index unexpectedly jumped 3.6ppts to 53.9 in June, pointing to a stronger expansion and above the Bloomberg consensus of 51.3. The details of the report were broadly positive from a growth perspective, and could worry Fed officials as they seek to cool the economy.

"Selfishly, I don't want the Fed to raise rates but they're going to do it just because of the numbers being where they are and that they're going to definitely try and stave inflation off even more," Nieves said.

NOT SEEING A RECESSION

Nieves said faster growth in June was driven by accommodation, food services, arts, and entertainment and recreation. "People are spending money on experiences including travel and vacation, instead of tangible goods," he said.

Employment jumped 3.9ppts and registered an expansionary reading as some respondents noted persistent labor shortages. The prices gauge suggested that services inflation moderated, while supplier deliveries accelerated marginally.

New orders increased 2.6ppts to 55.5, indicating expansion for the sixth consecutive month after contracting in December. The increase in new orders is "sustainable," Nieves said.

Despite the Fed having hiked by 500 basis points in a little over a year, Nieves said growth has proven surprisingly durable. "Overall, the economy has been resilient to what's been going on with the Fed," he said.

The June survey showed respondents had "little to no comments about a recession" with an economy that has "too much activity and low employment," Nieves said. "Overall, they are not giving any feedback as to whether they see a recession going forward."