Solid Expansion Pace in U.S. Services Shows Firmer Economy

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ISM Non-Manufacturing Index Eases to 56.9 in May

Industries making up the bulk of the U.S. economy continued to expand at a solid pace in May, adding to signs of steady growth this quarter, a survey from the Institute for Supply Management showed Monday.

Highlights of ISM Non-Manufacturing (May)

  • Non-manufacturing index eased to 56.9 (forecast was 57.1) from 57.5 in April; readings above 50 indicate growth
  • New orders gauge dropped to a six-month low of 57.7 from 63.2, which was the highest since August 2005
  • Employment measure rebounded to 57.8, the strongest since July 2015, from an eight-month low of 51.4

Key Takeaways

While the slower pace of orders represents a pullback from a more than 10-year high reached a month earlier, the index level remains consistent with steady, yet uneven, growth.

The surprising aspect of the report was the jump in the group’s employment measure, which is at odds with the more muted tone of May hiring as reported by the Labor Department on Friday. Fifteen industries reported boosting employment while just one registered a decline. The pickup in the ISM’s gauge may signal the slowdown in payroll growth reported by the government will prove temporary.

Overall, the figures are consistent with the group’s manufacturing survey, released last week, which showed factories were expanding at a more sustainable pace.

The world’s largest economy continues to advance, with domestic demand being propelled by modest wage gains and low borrowing costs while global growth brightens somewhat.

Other Details

  • Order backlogs measure jumped to 57, the strongest since August 2007, from 53.5, which may explain the pickup in labor demand
  • Business activity gauge eased to 60.7 from 62.4 in April
  • Prices-paid index fell to 49.2, the first contraction since February 2016, from 57.6
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