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First Cut: ISM Non-Manufacturing Index returns to firmer readings, above expectations for May

The ISM Non-Manufacturing Index for May rose to 56.9 from 55.5 in April, outdoing market expectations and showing the service sector is humming along for a 112th consecutive month of expansion even as activity in the manufacturing sector is more hesitant.

The index components reflected stronger business activity, a slight increase in new orders, firming employment, and supplier delivery times just below neutral. If conditions are off the peaks of 2018, these are still healthy readings. With the service sector accounting for roughly 80% of jobs in the labor force, this should be reassuring that the US economy is not stumbling into a downturn in the near term.

The prices paid index was little changed at 55.4 in May from 55.7 in April. Survey respondents cited higher prices for dairy, motor fuels, and labor as the main drivers behind price increases. Impacts from trade and tariff policy appear to be small where present.

Export orders were a bit slower at 55.5 in May from 57.0 in April but were still increasing moderately. Imports fell to 50.0 from 55.0 in the prior month, suggesting that service businesses had briefly increased imports in the prior month to get ahead of possible impacts from tariffs and are now back to a cautious stance.

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