Softer But Largely Solid Services PMI

Spanish Services PMI disappointed in June with a drop to 53.4 from 56.7 prior (and vs 55.7 expected), pulling the Composite reading down to 52.6 from 55.2 (54.2 expected).

• This was the weakest Services print since January, with the HCOB/S&P Global report pointing to a "healthy demand environment" albeit slowing rates of expansion in the key categories of activity, new business, and employment.
• Inflation pressures continued to ease (input and output cost inflation) though remained at elevated levels, with "strong wage pressures" the "principal driver" of inflation. Firms "continued to partly transfer increasing costs on to their clients and subsequently signalled another solid increase in their charged prices" but "the rate of input cost inflation was the softest in just over two years and the increase in selling prices was the least pronounced since October 2021."
• Despite rising backlogs and capacity constraints, employment growth fell to a 4-month low (albeit amid 9 consecutive months of expansion).
• The report hints at potential one-off factors negatively impacting the reading ("in some cases ... local and general elections hampering activity"), and suggests that July's general elections may result in further uncertainty dragging on activity. Even so, Spanish services companies' 12 month outlook for activity continued to improve on demand optimism.
• Overall this report was a little soft but the economic outlook remains solid (2023 median GDP growth expectation is 2% vs 1% coming into the year).

Source: HCOB, S&P Global