The US services sector has shown little growth amid a slowdown in new orders, pushing the prices index that companies pay for inputs to its lowest level in three years, which may help the Federal Reserve (the US central bank) in combating inflation. Factory orders increased for the second consecutive month. However, except for the jump in defense orders, weakness was prevalent across the manufacturing sector, consistent with survey results indicating that the sector is now in a prolonged state of weakness.
The Institute for Supply Management reported that the "non-manufacturing purchasing managers' index fell to 50.3 last month from 51.9 in April." The services sector has benefited from a shift in consumer spending after a period of excess spending on goods during the COVID-19 pandemic, influenced by restrictions on social activities such as dining out and travel. However, following the Federal Reserve's increase of interest rates by 500 basis points, consumers are now focusing more on essential needs.
The services sector is at the forefront in the battle against inflation as service prices are usually more stable and less responsive to interest rate increases. The prices index that services companies pay for inputs decreased to 56.2 last month, the lowest level since May 2020, down from 59.6 in April.
A report from the Department of Commerce indicated that defense capital goods orders jumped by 36%, bolstering factory orders. The department stated that factory orders increased by 0.4% after rising by 0.6% in March.
