Flat US services PMI suggests no rush for Fed rate hike

Activity in the US services sector failed to rally as hoped in June, according to data released on Monday, suggesting that the economy's underlying rate of growth remains lowly and that a rate hike may not be on the cards too soon.

Markit’s flash US services purchasing managers’ index (PMI) remained at 51.3 in June for the second month, falling short of expectations for a rise to a reading of 51.9.

Although it remained above the 50.0 mark that separates contraction from expansion, it was well below the long-run survey average of 55.6.

“The survey data indicate that any rebound in the economy from the weak first quarter was largely confined to April, and that growth has since faded again," said Chris Williamson, Markit's chief economist.

"The June PMIs, which provide the first insight into national business activity in the second quarter, suggest the underlying rate of growth in the economy is only a meagre 1%."

He said the sector's optimism was the lowest seen since the height of the financial crisis and looks set to intensify in coming months due to the UK’s shock Brexit vote and worries about the US presidential election.

“Signs of weak economic growth and a sluggish labour market, combined with ‘Brexit’ uncertainty, suggest that already-cautious policymakers will be in no rush to tighten policy,” Williamson concluded.