ISM: Services Sector Expands After Temporary Dip in April

Economic activity in the services sector grew in May after contracting in April for the first time since December 2022, according to the latest Services ISM Report On Business. The Services PMI registered 53.8%, indicating sector expansion for the 46th time in 48 months.

The report was issued by Anthony Nieves, chair of the Institute for Supply Management (ISM) Services Business Survey Committee.

“In May, the Services PMI registered 53.8%, 4.4 percentage points higher than April’s reading of 49.4%. The contraction in April ended a string of 15 months of services sector growth following a composite index reading of 49% in December 2022; the last contraction before that was in May 2020 (45.4%),” Nieves said. “The business activity index registered 61.2% in May, which is 10.3 percentage points higher than the 50.9% recorded in April. 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 52.7%, 4.2 percentage points higher than the 48.5% recorded in April. The index went into expansion territory — indicating slower supplier delivery performance — in May for the first time since January. (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),” Nieves said. “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%.”

“Thirteen industries reported growth in May. The services PMI — after a contraction in April preceded by 15 consecutive months of growth after a contraction in December 2022 and 30 months of expansion before that — has indicated sustained growth for the sector. The reading of 53.8% in May reflects month-over-month growth,” Nieves said. “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 — listed in order — are:

  • Real estate
  • Rental and leasing
  • Health care and social assistance
  • Other services
  • Educational services
  • Utilities
  • Wholesale trade
  • Construction
  • Transportation and warehousing
  • Public administration
  • Management of companies and support services
  • Finance and insurance
  • Information
  • Professional, scientific and technical services

The five industries reporting a decrease in the month of May are:

  • Retail trade
  • Agriculture, forestry, fishing and hunting
  • Arts, entertainment and recreation
  • Accommodation and food services
  • Mining

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