Economic activity in the non-manufacturing sector contracted in May for the second consecutive month, according to the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business.

“The NMI registered 45.4%, 3.6 percentage points higher than the April reading of 41.8%. This reading represents contraction in the non-manufacturing sector for the second consecutive month, following a 122-month period of expansion,” Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, chair of the Institute for Supply Management (ISM) Non-Manufacturing Business Survey Committee, said. “The Business Activity Index increased 15 percentage points from April’s figure, registering 41%. The New Orders Index registered 41.9%, 9 percentage points higher than the reading of 32.9% in April. The Employment Index increased to 31.8%, 1.8 percentage points higher than the April reading of 30%.

“The Supplier Deliveries Index registered at 67%, down 11.3 percentage points from April’s all-time-high reading of 78.3%, which elevated the composite NMI. The Supplier Deliveries Index is one of four equally weighted sub-indexes that directly factor into the NMI, along with Business Activity, New Orders and Employment. Supplier Deliveries is the only ISM Report On Business index that is inversed. A reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases. The higher readings for supplier deliveries the past three months are primarily a product of supply problems related to the coronavirus (COVID-19) pandemic.

“The Prices Index figure of 55.6% is 0.5 percentage point higher than the April reading of 55.1%, indicating that prices increased in May. According to the NMI, four non-manufacturing industries reported growth. The non-manufacturing composite index indicated contraction for a second consecutive time. The sector’s previous period of contraction was for two months in 2009: November (with an NMI of 49.5%) and December (49.7%). Respondents remain concerned about the ongoing impact of the coronavirus. Additionally, many of the respondents’ respective companies are hoping and/or planning for a resumption of business.”

Industry Performance

The four non-manufacturing industries reporting growth in May were Agriculture, Forestry, Fishing and Hunting; Finance & Insurance; Public Administration; and Information. The 14 industries reporting a decrease in May — listed in order — were Mining; Arts, Entertainment & Recreation; Other Services; Construction; Educational Services; Professional, Scientific and Technical Services; Utilities; Wholesale Trade; Accommodation and Food Services; Management of Companies and Support Services; Real Estate, Rental and Leasing; Transportation and Warehousing; Health Care and Social Assistance; and Retail Trade.

What Respondents Are Saying

• “Current operations have been reduced to accommodate a slowed economy, but the business is taking time to review operation and implement more efficient processes. Purchasing has slowed for client facing goods/services but has increased for internal operating supplies/services.” (Accommodation and Food Services)
• “Demand seems to have bottomed out, and we are seeing signs of increasing interest. Inventories of finished goods are extensive, so production will slowly rebound in the coming months.” (Agriculture, Forestry, Fishing and Hunting)
• “Sales have slowed, but backlog has remained [at] 2019 levels. Several key commodities have seen radical up-and-down swings in pricing, specifically lumber. Some suppliers recognize the downturn and are beginning to voluntarily offer pricing concessions.” (Construction)
• “Students participating in online education classes have greatly reduced the need on campus. Coupled with the natural slow down we normally experience in the spring and summer terms with reduced student enrollment, and our workload has diminished substantially.” (Educational Services)
• “Extremely busy with Small Business Administration Paycheck Protection Program work.” (Finance and Insurance)
• “Low volumes due to COVID-19. No elective surgeries.” (Health Care and Social Assistance)
• “Company is preparing to reopen offices worldwide, as communities relax work-from-home lockdowns. No employees have been furloughed or RIF’d and CEO says company should be able to maintain full employment at least through 3rd quarter if health situation remains as is. By Q4, a re-evaluation of staffing levels would need to be done if no improvement to the economic situation.” (Information)
• “COVID-19 is still impacting our revenue significantly and the prices we are paying for goods and services.” (Public Administration)
• “COVID-19 has had the largest impact on our company; however, we successfully kept 90% of our retail locations open to the public while implementing intense cleaning procedures and safety protocols. Our entire 300+ headquarters has been set up to work remotely to support our retail locations.” (Retail Trade)
• “Business is slightly picking up but is still drastically down due to COVID-19 and hospitality businesses being closed or limited in service.” (Wholesale Trade)

*Non-Manufacturing ISM Report On Business data is seasonally adjusted for the Business Activity, New Orders, Prices and Employment indexes. Manufacturing ISM Report On Business data is seasonally adjusted for New Orders, Production, Employment and Inventories indexes.

**Number of months moving in current direction.