Economic activity in the services sector grew in May for the 12th month in a row, according to the latest Services ISM Report on Business from the Institute for Supply Management.

“The Services PMI reached another all-time high in May, registering 64%, which is 1.3 percentage points higher than April’s reading of 62.7%. The previous record high was 63.7% in March. The May reading indicates the 12th straight month of growth for the services sector, which has expanded for all but two of the last 136 months,” Anthony Nieves, CPSM, CPM, APP, CFPM, chair of the Institute for Supply Management’s services business survey committee, said. “The Supplier Deliveries Index registered 70.4%, up 4.3 percentage points from April’s reading of 66.1%. (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 Prices Index registered 80.6%, which is 3.8 percentage points higher than the April reading of 76.8%, indicating that prices increased in May and at a faster rate. The last time the Prices Index was this elevated was when it registered 77.4% in July 2008; the all-time high is 83.5% in September 2005.

“According to the Services PMI, all 18 services industries reported growth. The composite index indicated growth for the 12th consecutive month after a two-month contraction in April and May 2020. There was continued growth in the services sector in May. The rate of expansion is very strong, as businesses have reopened and production capacity has increased. However, some capacity constraints, material shortages, weather-related delays and challenges in logistics and employment resources continue.”

As Nieves noted, all 18 services industries reported growth in May, including construction, finance and insurance, and transportation and warehousing.

What Respondents Are Saying

• “Stimulus money, increased vaccinations, increased dining capacity and pent-up demand are driving a fast recovery for dine-in restaurants — and all consumer segments, it seems — resulting in labor shortages and supply chain gaps.” (Accommodation and Food Services)
• “Container delays are impacting our supply chain in a significant way. Delays at the Port of Montreal and West Coast ports have impacted our ability to provide products in growing season. Truck availability has generally been tighter than normal. We’ve seen a real impact in the southeastern market.” (Agriculture, Forestry, Fishing and Hunting)
• “Business continues to improve, and we have worked through many of the supply chain disruptions at this time. We have begun to return to work at our corporate office on a limited basis.” (Arts, Entertainment and Recreation)
• “We are still busy and adding employees. One of the biggest concerns now is shortages of crucial material and equipment. Metal coils for production are especially scarce. Equipment and material suppliers have been raising prices since the first of the year. We hear of a new increase almost daily.” (Construction)
• “We anticipated the reopening reasonably well but were caught off guard with respect to some materials. Steel and copper went higher than anticipated, and shortages are having an impact.” (Finance and Insurance)
• “As the vaccination rate continues to climb and the coronavirus (COVID-19) infection rate continues to plummet, business conditions are steadily improving. Strong revenue performance is returning and outlooks are improving. Some supply categories remain constrained (nitrile gloves, sterile wrap and the like), yet are somewhat manageable, limiting the impact to daily operations.” (Healthcare and Social Assistance)
• “(We are) seeing cost increases and long lead times with steel and steel containers. Worker shortages, temp labor and the like.” (Management of Companies and Support Services)
• “Transportation, labor, steel and general commodities are all increasing (in price) based upon general inflation and the rising price of oil.” (Mining)
• “Small businesses in the area are reporting stimulus checks and extension of unemployment are hampering their ability to hire workers. Seasonal labor and H-2B (visa) workers are in very short supply, causing an uptick in cost per hour. Some employers are reporting they are offering cash incentives of (U.S.)$50 if you show up for an interview.” (Professional, Scientific and Technical Services)
• “Business is very strong, and customer orders continue to increase at a rapid pace. Material shortages, increased prices and qualified personnel shortages are becoming a much larger concern.” (Real Estate, Rental and Leasing)
• “Very concerned about the rapid and continuing price escalations for any products with copper, steel and polyvinyl chloride (PVC). Production issues and lead-time extensions are not improving.” (Retail Trade)
• “Business is doing good, exceeding sales target, but we have challenging issues with (1) increases in raw materials costs and freight rates, (2) huge freight delays from overseas and (3) continued U.S. port delays. The (COVID-19 surges) in India and Taiwan are also causing delays on product availability/shipments.” (Wholesale Trade)