U.S. Service Sector Growth Dips in June

• United States (U.S.) services sector activity dipped in June as some of the boost from businesses rushing to place orders amid the Middle East war ‌ebbed, but employment rebounded after contracting for three straight months, pointing to continued labour market stability.
• The Institute for Supply Management said on Monday, July 6, 2026, its non-manufacturing purchasing managers index edged down to 54.0 last month from 54.5 in May. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity. The survey measure of new orders received by services businesses also dropped to 55.1 after surging to 57.3 in May. Order ⁠backlogs, however, increased last month.
• A similar dynamic was observed in the Institute for Supply Management’s (ISM's) manufacturing survey last week. The four-month U.S.-Israeli conflict with Iran raised prices of commodities, including oil. Washington and Tehran have since agreed to a ceasefire, with the fragile truce last month pushing oil prices back to pre-war levels.
• The decline in oil prices helped to slow the pace of increase in services inflation. A measure of prices paid by services businesses dropped to a still-high 67.7 from 71.3 in May. However, economists have warned that underlying inflation could remain elevated even if oil prices dropped. This will likely be driven by the fact that businesses are investing heavily in artificial intelligence, driving up prices of goods like semiconductors and electronics.
• Consequently, most economists continued to expect that the ⁠Federal Reserve (Fed) would hike interest rates this year, despite job growth slowing considerably in June and revisions showing nonfarm payroll gains in the prior two months were not as strong as previously reported. The U.S. central bank last month left its benchmark overnight interest rate in the 3.50%-3.75% range, but updated quarterly projections showed policymakers expected to raise borrowing costs this year.

(Source: Reuters)