US services sector activity shrinks very sharply in June, ISM says

Significantly, many of the survey's respondents referenced the impact of high costs and prices during the month.

The Institute for Supply Management's services sector Purchasing Managers' Index fell from a reading of 53.8 for May to 48.8 in June.

Economists had forecast a reading of 52.5.

A subindex for production dropped from 61.2 to 49.6, while that for new orders declined from 54.1 to 47.3.

Another key subindex, that for employment, dipped from 47.1 to 46.1.

Price pressures abated a tad alongside with the corresponding subindex slipping from 58.1 to 56.3.

"Alongside a decline in the ISM manufacturing index, these surveys suggest that GDP growth will remain weak in the third quarter," said Olivia Cross, North America economist at Capital Economics.

"They also add to evidence that labour demand is softening, and inflation will remain on a downward trend."

In response to the latest ISM survey results, as of 1534 BST the yield on the benchmark 10-year US Treasury note was dropping by eight basis points to 4.356%.

For Ryan Sweet, chief US economist at Oxford Economics, the larger than expected drop in the ISM index was "a little troubling" bit it was important not to overreact to any single month's-worth of data.

"The decline in employment lends a little downside risk to our forecast for a net gain of 215,000 in nonfarm employment in June," he added.

"The ISM employment index doesn’t do a great job in forecasting changes in nonfarm employment. Other data on the labor market paint a better picture than the ISM nonmanufacturing survey."