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Economy in Brief

U.S. ISM Services Index Strengthens in May
by Tom Moeller  June 3, 2021

• Improvement is unexpectedly strong.

• Business activity improves but employment reading falters.

• Pricing power builds to near-record level.

Service sector activity improved last month along with the factory sector, as reported Tuesday. The Composite Index of Services Activity rose to a record 64.0 last month from 62.7 during April. (The series dates back to July 1997.) A reading of 62.6 had been expected in the Action Economics Forecast Survey.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading, released on Tuesday. The composite index improved to a near-record 63.7 last month from 62.5 in April. The record reading of 63.8 was reached in March. During the last 10 years, there has been a 53% correlation between the index level and the q/q change in real GDP. The composite is based on GDP shares.

Changes in the services sub-index series were mixed during May. The supplier delivery index strengthened to 70.4 from 66.1. An increased 41.9% of firms reported slower delivery speeds while a lessened 1.1% reported them quicker. The business activity reading rose to 66.2 from 62.7 in April, but it remained below the record 69.4 reached in March. The new orders index improved to 63.9 from 63.2. It as below the record of 67.2 in March. Falling was the employment measure to 55.3 after easing to 58.8 in April.

The prices index strengthened to 80.6 last month after rising to 76.8 in April. The figure was a near-record high and compared to a low of 50.9 in March 2020. A strengthened 65.9% of respondents reported higher prices while a negligible 0.5 percent reported price declines. The percentage reporting no change in prices fell sharply to 33.5% and remained well below its 80.4% high in February of last year.

The order backlogs index surged to a record 61.1. The export orders series rose to 60.0 and remained up from 47.0 in January. The imports index declined to 50.4, its lowest level since September 2020. These series are not seasonally adjusted and are not included in the nonmanufacturing composite.

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.

ISM Services Survey (SA) May Apr Mar May '20 2020 2019 2018
Services PMI 64.0 62.7 63.7 45.4 54.3 55.5 59.0
   Business Activity 66.2 62.7 69.4 41.2 55.8 58.0 61.6
   New Orders 63.9 63.2 67.2 41.3 55.6 57.6 61.5
   Employment 55.3 58.8 57.2 32.2 46.0 55.0 56.9
   Supplier Deliveries (NSA) 70.4 66.1 61.0 67.0 59.7 51.5 55.8
Prices Index 80.6 76.8 74.0 56.4 58.6 57.5 62.0
ISM Mfg. & Services (Haver Composite) 63.7 62.5 63.8 45.2 54.1 55.0 58.9
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