U.S. services sector activity rebounded in June, although the growth pace is slow and heightened uncertainty due to tariffs remain.

The ISM Services PMI jumped to 50.8 in June, compared to the 49.9 recorded in May, and just above the 50.5 expected in the Econoday survey of forecasters.

Price increases impacting costs of operations were mentioned more frequently this month, the report said. Middle East tensions were a new subject of comments in June, but there was no indication of related supply chain disruptions. The most common topic among survey panelists continued to be concerns about impacts related to tariffs.

The Business Activity Index showed expansion for June and has not contracted since May 2020. New orders bounced back after contracting in May for the first time in nearly a year, while employment shrank for the third time in the last four months.

Prices dipped compared to May but remain elevated (the May and June price readings are the highest since November 2022).

Slight recovery to 50.5 expected from 49.9 in May.

Producing a monthly composite on general activity tracked in volumes, the Institute for Supply Management surveys several hundred service-providing firms from 16 industries (construction and mining are included). The services composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation: a reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM services index, investors will know what the economic backdrop is for the various markets. The services index is a composite of four equally weighted components: business activity, new orders, employment, and supplier deliveries. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this report goes back to 1997. Note that in 2020 the ISM changed the name of the report to services from non-manufacturing though it continues to track two key goods producing industries: construction and mining.