ISM Shows Service Sector Growth Slowed in June

So far, the economic data for June isn't looking very good. Consumer sentiment fell, and so did jobs. Today's Institute for Supply Management report on the service sector adds to the pessimism. Although it shows that the services sector is still growing, it's doing so at a slower pace, across almost all of its indices. This is particularly troubling, since service sector health is an important indicator for the direction of consumer spending.

The following chart is provided by ISM, with two columns added from its May report:

ism services 2010-06.PNG

Focus on the "June Rate of Change" column first. One row, supplier deliveries, continued to slow at the same rate. Inventories also continued to grow a little more slowly, which is an improvement. That's all the good news the column provides. Every other indicator shows that service sector growth slowed in June, or reversed course. Three indices that were growing in May began contracting, including employment, new export orders, and imports.

Now compare that with the last two columns for May -- which was a pretty weak month for economic indicators. Then, only four indices grew more slowly. Meanwhile, two began growing after contracting. Business activity grew faster. This is a vastly different, and much more optimistic, picture.

The ISM report shouldn't have people trembling with double dip expectation just yet. Several key indicators in June continued to grow, including ISM's general non-manufacturing index, business activity, and new orders. As mentioned, inventories also appear to be increasing at a slower rate, which may indicate hiring in the relative near future. Overall, today's report adds to the narrative of a very slow recovery, but a recovery nonetheless.