By Xavier Fontdegloria

Activity in the U.S. services sector improved in June for the second consecutive month, but remained in contraction territory, as the country continued to reopen amid Covid-19 infections on the rise in many states, data from IHS Markit showed Monday.

The final reading for the U.S. Services Purchasing Managers' Index for June was 47.9, significantly higher than the 37.5 level registered in May and above the flash figure of 46.7.

Economists polled by FactSet expected the indicator to remain unchanged from its flash reading of 46.7.

The U.S. Services PMI is a survey-based measure of activity in industries such as communications, finances or consumer services. A level above 50 indicates expansion, while a reading below 50 signals contraction.

The pace of contraction was the slowest in the current four-month sequence of decline. "The marked easing in the rate of output contraction was in part linked to the reopening of service providers and the gradual return of customer demand," IHS Markit said.

New business inflows meanwhile broadly stabilized in June following three successive monthly contractions, with firms reporting an uptick in customer demand following the gradual reopening of the economy, the report said.

Service providers continued to cut their workforce numbers, but at a much reduced pace compared with the previous months. Although some companies noted that layoffs stemmed from ongoing closures and subdued demand, others resumed hiring as new order inflows stabilized, IHS Markit said.

Chris Williamson, chief business economist at IHS Markit, said in prepared remarks that the survey points to a strong initial rebound from the low point seen at the height of the pandemic lockdown in April, with indicators of output, demand, exports and employment all showing steep gains.

"With business confidence in the outlook picking up again in June, a return to growth for the economy in the third quarter looks likely, though this will very much depend on the extent to which demand continues to strengthen," Mr. Williamson said.

The need to reintroduce lockdowns to fight off second waves of coronavirus infections will pose a threat to the recovery momentum, he said.

IHS Markit said the Composite PMI Index was 47.9 in June, sharply up from 37.0 in May and slightly above the earlier flash reading of 46.8.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

(END) Dow Jones Newswires

July 06, 2020 10:18 ET (14:18 GMT)