ISM Services Report: 14 Industries Reported Growth in May

The Institute of Supply Management (ISM) has now released the May Services Purchasing Managers' Index (PMI). The headline Composite Index is at 55.9 percent, down 1.2 from 57.1 last month. Today's number came in below the forecast of 56.4 percent.

Here is the report summary:

(Tempe, Arizona) — Economic activity in the services sector grew in May for the 24th month in a row — with the Services PMI® registering 55.9 percent — say the nation’s purchasing and supply executives in the latest Services ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In May, the Services PMI® registered 55.9 percent, 1.2 percentage points lower than April’s reading of 57.1 percent. This is the lowest reading since February 2021, when the index also registered 55.9 percent. The Business Activity Index registered 54.5 percent, a decrease of 4.6 percentage points compared to the reading of 59.1 percent in April, and the New Orders Index figure of 57.6 percent is 3 percentage points higher than the April reading of 54.6 percent.

“The Supplier Deliveries Index registered 61.3 percent, 3.8 percentage points lower than the 65.1 percent reported in April. (Supplier Deliveries is the only ISM® Report On Business® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index dropped from the all-time high of 84.6 percent in April, decreasing 2.5 percentage points to 82.1 percent. Services businesses continue to struggle to replenish inventories, as the Inventories Index grew, but at a slower rate. The reading of 51 percent is down 1.3 percentage points from April’s figure of 52.3 percent. The Inventory Sentiment Index (44.5 percent, down 2.2 percentage points from April’s reading of 46.7 percent) contracted in May for the third consecutive month, indicating that inventories are in ‘too low’ territory and insufficient for current business requirements.”

Nieves continues, “According to the Services PMI®, 14 industries reported growth. The composite index indicated growth for the 24th consecutive month after a two-month contraction in April and May 2020. Growth continues — albeit slower — for the services sector, which has expanded for all but two of the last 148 months. The sector’s slowdown was due to a decline in business activity and slowing supplier deliveries. The Employment Index (50.2 percent) returned to expansion territory, and the Backlog of Orders Index grew, though at a slower rate. COVID-19 continues to disrupt the services sector, as well as the war in Ukraine. Labor is still a big issue, and prices continue to increase.” [Source]

Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows the Non-Manufacturing Composite.

The more interesting and useful subcomponent is the Non-Manufacturing Business Activity Index. The latest data point at 54.5 percent is down 4.6 from a seasonally adjusted 59.1 the previous month.

ISM Services

For a diffusion index, this can be an extremely volatile indicator, hence the addition of a six-month moving average to help us visualize the short-term trends.

Theoretically, this indicator should become more useful as the time frame of its coverage expands. Manufacturing may be a more sensitive barometer than Non-Manufacturing activity, but we are increasingly a services-oriented economy, which explains our intention to keep this series on the radar.

Here is a table showing the trend in the underlying components.

Here is a link to our coverage of the latest ISM Manufacturing report.

We will publish our next ISM Non-Manufacturing report on June 3.

Read more updates by Jill Mislinski