U.S. Services PMI Falls Sharply in May; Prices Continue to Strengthen

The Institute for Supply Management’s Services PMI declined to 49.9 in May, after rising to 51.6 in April from 50.8 in March, according to today’s report. The reading indicated service sector contraction after ten months of expansion. The index hit a recent high of 55.8 in October of last year and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected 52.0 during May.

Haver Analytics constructs a composite index combining the services index and the manufacturing index released on Monday. This index declined to 49.7 in May after rising to 51.2 in April. The latest figure is below its October high of 54.7.

Amongst the services component series, the business activity index declined to a five-year low of 50.0 after weakening to 53.7 in April. Twenty-two percent (NSA) of respondents reported improved activity while 17.2% reported deterioration. The new orders component fell to 46.4 from 52.3 in April. Twenty percent (NSA) of respondents reported orders improvement while 22.7% reported a decline. Moving higher, the employment index rose to 50.7 after increasing to 49.0 in February. Higher employment was reported by a slightly lessened 14.3% (NSA) of respondents while fewer 13.2% reported a decline. The supplier delivery series improved to 52.5 in May after rising to 51.3 in April, indicating slower delivery speeds.

On the inflation front, the prices index surged to 68.7 in May after rising to 65.1 in April. A greatly increased 45.3% (NSA) of respondents reported higher prices while a higher 3.3% reported lower prices. The index was increased from its March 2024 low of 53.5 and stood at its highest level since November 2022.

Additionally, the new export orders index was little changed at 48.5 (NSA) in May following an increase to 48.6 in April. Just 14.4% of survey respondents reported higher exports while a fairly steady 17.5% reported a decline. The imports index partially rebounded to 48.2 (NSA) last month after plummeting to 44.3 in April. A higher 12.3% of respondents reported higher imports while a steady 15.9% reported lower. The inventory change index fell to 49.7 (NSA), a four-month low. The order backlog index declined to 43.4 (NSA) in May from 48.0 in April. A lessened 8.1% of respondents reported higher backlogs while a higher 21.4% reported lower. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's USECON database, with additional detail in the SURVEYS database. The expectations figure from Action Economics is in the AS1REPNA database.