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Economy in Brief

U.S. ISM Services PMI Drops in May to the Lowest Level since Feb. '21
by Winnie Tapasanun  June 3, 2022

• Services PMI indicates economic activity in the services sector expands for the 24th straight month but at a slightly slower pace.

• Mixed movement in sub-indexes: business activity index falls to a two-year low while new orders index rebounds and employment recovers to an expansion level.

• Prices index declines to a still-elevated level from a record high.

The U.S. ISM Services PMI fell to 55.9 in May from 57.1 in April and 58.3 in March, according to the Institute for Supply Management. The May reading was down from a peak of 68.4 in November and 63.2 last May. However, the 12-month average was 61.2, reflecting consistently strong growth in the U.S. services sector. The Action Economics Forecast Survey had expected 56.5 for May.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index fell to 55.9 in May, the lowest level since May 2020, from 56.9 last month and 63.0 last May. These series date back to July 1997.

In the latest services survey, the business activity index decreased to 54.5 in May, the lowest reading since May 2020, after rising to 59.1 in April. A lessened 27.1% (NSA) of respondents reported higher activity, down from 37.8% in April. A higher 13.3% reported an activity decline, up from April's 6.5%. The new orders index recovered to 57.6 from 54.6. Thirty-one percent (NSA) of respondents reported more orders while 14.1% reported a decline. The employment index rebounded to 50.2 from a contraction-level 49.5. An improved 26.1% of respondents indicated higher employment, but a lessened 22.7% reported it lower. The percentage indicating that employment held steady declined slightly to 51.2% of respondents. The supplier deliveries index (NSA) fell to 61.3 in May after rising to 65.1 in April. An improved 4.9% of respondents reported faster delivery speeds while 27.4% reported slower speeds.

The prices index fell to a still-elevated 82.1 in May, the lowest level since September, from a record 84.6 in April; however, it was up from 79.1 last May. Seventy-two percent (NSA) of respondents reported price increases while only 1.0% reported price decreases. An increased 26.8% reported stable prices this month vs. 24.4% in April.

The new export orders index rebounded to 60.9 in May from 58.1 in April, indicating expansion in new export orders for the fourth successive month at a faster pace. The backlog of orders index fell to 52.0, the lowest reading since March 2021, from 59.4. The inventories index declined to 51.0, a three-month low, from 52.3. This also indicated that inventories grew in May for the fourth consecutive month after eight straight months of contraction. The imports index slipped to 52.8 in May from 52.9 in April. These series are not seasonally adjusted and not included in the ISM Services PMI total.

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.

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