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MNI INTERVIEW: US Service Growth Still Durable, ISM Chief Says
U.S. services growth again showed signs of moderating in May but with price inflation cooling the Federal Reserve may not have to raise interest rates much more, Institute for Supply Management services chair Anthony Nieves told MNI Monday.
"I still see that the composite index will still be in the low 50 percentile range, probably in the 51-52 range next month," he said in interview, again slightly downgrading views of potential growth but dismissing a recession. "I don't think we'll pull back under 50," Nieves said of the services PMI.
The ISM services survey’s headline fell 1.6ppts to 50.3 in May, under the Bloomberg consensus of 52.4, due mostly to the decrease in employment and improvements in delivery times.
"I would be more concerned if we had contraction on new orders and business activity," Nieves said of May's performance.
The ISM services chief acknowledged the slower path of growth but noted survey respondents are not indicating "things are falling off the edge of the cliff here," he said. "It's further cooling in momentum right now."
New orders fell 3.2ppts to 52.9, but the backlog of orders plummeted to 40.9 from 49.7. Still, Nieves said demand is expanding and sees that continuing. "I don't anticipate us getting into contraction territory." Demand is now a greater concern in the manufacturing sector.
The Institute for Supply Management's price index fell 3.4 percentage points to 56.2 in May, the lowest level since May 2020 and in the middle of its long run range. There were 11 commodities reported up in price, 5 reported down in price, and 10 reported in short supply.
The survey showed 25% of respondents seeing higher prices, 70% reporting no change, and 6% citing declining prices.
"We'll see prices kind of move sideways. I don't think it's going to pull back any more," said Nieves, adding that the economy is shifting to a buyers' market.
The prices paid index points to inflation on a path to the Federal Reserve's 2% target, he said. "I hope it prompts them to start pulling back on rates."
Fed officials signaled holding off from another rate rise at next week's meeting but could again hike interest rates in July. (See: MNI POLICY: Fed Most Divided Since Start Of Hikes, More Loom)
The May ISM service sector measure of employment employment sagged 1.6ppts to 49.2, the first contraction after three consecutive months of growth. "Going forward, I wouldn't be surprised to see employment go back over 50," Nieves said.
"Wage pressure seems to be leveling off," he said, attributing the stasis in employment to uncertainty in the outlook. "We're doing more with less. We're trying to get the same things done and wait and see what's going to happen before they start looking at backfilling certain positions."
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