The Institute for Supply Management Report On Business for the services industries reported economic activity in the sector grew in May after contracting in April for the first time since December 2022.
The Services Purchasing Managers Index (PMI) registered 53.8%, indicating sector expansion for the 46th time in 48 months. An index reading of 50 is the line between expansion and contraction.
Anthony Nieves, chair of the ISM Services Business Survey Committee, said the May PMI was up 4.4 percentage points compared to April’s reading of 49.4%. The April contraction ended a 15-month string of services sector growth since the PMI hit 49% in December 2022.
“The Business Activity Index registered 61.2% in May, which is 10.3 percentage points higher than the 50.9% recorded in April,” Nieves said. “The New Orders Index expanded in May for the 17th consecutive month after contracting in December 2022 for the first time since May 2020. The figure of 54.1% is 1.9 percentage points higher than the April reading of 52.2%. The Employment Index contracted for the fifth time in six months, though at a slower rate in May with a reading of 47.1%, a 1.2-percentage point increase compared to the 45.9% recorded in April. The Supplier Deliveries Index registered 52.%, 4.2 percentage points higher than the 48.5% recorded in April.”
In May, the delivery index indicated expansion with slower supplier delivery performance for the first time since January. Supplier Deliveries is the only ISM Report On Business index that is inversed, as a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.
Nieves continued: “The Prices Index registered 58.1% in May, a 1.1-percentage point decrease from April’s reading of 59.2 %. The Inventories Index grew in May for the second consecutive month after four previous months of contraction, registering 52.1%, a decrease of 1.6 percentage points from April’s figure of 53.7%. The Inventory Sentiment Index, 57.7%, down 5.2 percentage points from April’s reading of 62.9 %, expanded for the 13th consecutive month. The Backlog of Orders Index grew in May for the second consecutive month after contracting in March, registering 50.8%, a 0.3-percentage point decrease compared to the April reading of 51.1%. The increase in the composite index in May is a result of notably higher business activity, faster new orders growth, slower supplier deliveries and despite the continued contraction in employment. Survey respondents indicated that overall business is increasing, with growth rates continuing to vary by company and industry. Employment challenges remain, primarily attributed to difficulties in backfilling positions and controlling labor expenses. The majority of respondents indicate that inflation and the current interest rates are an impediment to improving business conditions.”
The 13 services industries reporting growth in May were Real Estate, Rental & Leasing; Health Care & Social Assistance; Other Services; Educational Services; Utilities; Wholesale Trade; Construction; Transportation & Warehousing; Public Administration; Management of Companies & Support Services; Finance & Insurance; Information, and Professional, Scientific & Technical Services. The five industries reporting a decrease in the month of May were Retail Trade; Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Accommodation & Food Service, and Mining.
The Manufacturing PMI registered 48.7% in May, down 0.5 percentage point from the 49.2% recorded in April. Although the sector contracted, the PMI reading suggests that the overall economy continued in expansion in May for the 49th month after one month of contraction in April 2020, stated Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee. A Manufacturing PMI above 42.5% over a period of time generally indicates an expansion of the overall economy.
The seven manufacturing industries reporting growth in May were: Printing & Related Support Activities; Petroleum & Coal Products; Paper Products; Textile Mills; Primary Metals; Fabricated Metal Products, and Chemical Products. The seven industries reporting contraction in May were Wood Products; Plastics & Rubber Products; Machinery; Computer & Electronic Products; Furniture & Related Products; Transportation Equipment, and Food, Beverage & Tobacco Products.
