Overall business activity was up 1.6 points to 56.1, which should help quell some fear that an economic downturn is imminent. New orders did decline 2.0 points to 55.6, but with the reading still notably above the 50-breakeven point designating expansion from contraction, demand is cooling rather than buckling. The same cannot be said for the ISM manufacturing report, released last week, where new orders slipped into contraction-territory. The divergence in the two sectors emphasizes what we are seeing from a demand perspective in consumer purchasing habits and is consistent with our overall forecast of service activity holding up well, particularly through the summer months.
The services ISM for June continues to be consistent with a sector that is struggling with a demand and supply imbalance. Service-sector activity is notoriously more stable than manufacturing, even in the toughest of times, and we expect service activity to hold up reasonably well through the summer months. Real consumer spending on services rose for the fifteenth straight month in May, and there is still plenty of slack in many discretionary recreation categories of spending. High-frequency data indicate consumers are taking the vacation or attending the function no matter the cost. But with consumers' staying power showing initial signs of running out, once the summer is through the boost from services may not be enough to keep overall consumer spending in the black. - Wells Fargo Economics

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