The US service sector unexpectedly contracted in June, as indicated by the latest ISM Services PMI, which fell to 48.8 from 53.8 in May. This sharp decline missed market expectations of 52.5 and marked the first contraction since May 2020.
The report highlighted significant weaknesses across key metrics. The Prices Paid Index, reflecting inflation pressures, dropped to 56.3 from 58.1, while the Employment Index fell to 46.1 from 47.1, indicating a decline in hiring.
Steve Miller, Chair of the ISM Services Business Survey Committee, noted, "The decrease in the composite index in June is a result of notably lower business activity, a contraction in new orders, and continued weakness in employment." Miller pointed out that while inflation pressures are easing slightly, higher costs for certain commodities persist, exacerbated by transportation challenges.
The market reacted swiftly to the disappointing data, with the US Dollar Index falling sharply by 0.5% to 105.17 following the release of the report. The ISM Services PMI serves as a crucial indicator of economic health, with its contraction signaling potential headwinds for broader economic recovery.
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