Implications: Today's ISM services index fell slightly short of consensus expectations. However, at 53.3 the level of the index shows the service sector was still expanding in June. While some may say today's report is evidence of a worsening economy, we believe, based on many other pieces of data, that the soft patch is over, and expect the index to trend higher going forward. Special factors (tsunamis and tornadoes) have had a temporary negative impact on the economy over the past few months but these impacts are now diminishing. Moreover, the ISM services index often reacts to sentiment rather than actual business activity and the downward move in the index in June is probably tied to fears last month about the financial implications of a potential Greek default, the same fears that temporarily hurt the equity markets. On the inflation front, the prices paid index fell to a still elevated 60.9. This measure of price inflation will likely move back up in the months ahead given the recent rebound in oil prices as well as the Federal Reserve's loose monetary policy. In other recent news, autos and light trucks were sold at an 11.5 million annual rate in June, which was lower than the 11.8 million pace in May as well as the consensus expected pace of 12.1 million. Still, sales were 2.5% higher than a year ago. Sales were relatively slow in June due to supply-chain disruptions from Japan, which have reduced production as well as dealer/manufacturer incentives. We expect sales to rebound substantially in the next few months.
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