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First Cut: May ISM Non-Manufacturing Index saw some of the gloom lifted after a very weak April

The shadow of the COVID-19 pandemic still weighed heavily on the service sector in May, but service providers have had a little time to assess conditions and access relief programs, so there was some improvement in the situation. The ISM Non-manufacturing Index rose to 45.4 in May from 41.8 in April. This was still below the ISM’s general guideline that a reading of 48.5 demarcates recession from expansion in the national economy.

The four index components showed continued overall weakness in conditions in May, if less slow than in April. Business activity was up to 41.0 after 26.0 and new orders was up to 41.9 after 32.9. Both were decidedly firmer in tone while still contracting. The index for employment was only slightly improved in May to 31.8 after 30.0 in April and indicating that new hiring was more-or-less on hold even though some workers were recalled with the availability of funds in the Paycheck Protection Program. The index for supplier deliveries declined to 67.0 in May from 78.3 in April as movement along the supply chain was less restricted.

Order backlogs were still limited in May with the index at 46.4 from 47.7 in April. Without an excess of new orders to fill, there isn’t anything in the pipeline to help support activity. New export orders did pick up somewhat to 41.5 in May after 36.3 in April but orders from abroad are soft along with global economic conditions. The index for imports declined to 43.7 after 49.3 in the prior month. There may have been an influx of new orders in April to make up for the exceptionally narrow flow of goods in March and imports have now retreated again.

The inventories index remained in contraction in May at 48.0 after 46.9 in April as some goods remained on shelves a bit longer. However, sentiment in inventories being too high was down to 55.1 in May after rising sharply to 62.6 in April. Hopes are better than goods on hand will meet with future demand soon.

The index for prices paid was essentially unchanged in May at 55.6 after 55.1 in April. Prices for energy were a bit higher starting in May, but other price declines are providing some offset.

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