US: ISM services index falls in May

In May, the ISM services index fell more than expected to 55.9 from 57.1. The 12-month average is 61.2, reflecting continued strong growth in the service sector. But this month’s reading is the lowest since February 2021. The May reading shows the service sector growing for the 24th consecutive month.

If we look at the sub-items; The new orders index was 57.6, 3 points higher than the April reading of 54.6. The supplier deliveries index was recorded at 61.3, 3.8 points lower than 65.1 reported in April. The decline in this indicator also shows that the supply chain has eased a bit. The employment index returned to expansion territory at 50.2, which is good news after May’s nonfarm payrolls data, and the backlogs index grew, albeit at a slower rate. The new export orders index was recorded at 60.9, up 2.8 points from 58.1 reported in April. The import index was 52.8, down 0.1 points from April’s reading of 52.9.

The price index fell 2.5 points to 82.1, falling from an all-time high of 84.6 in April. Although the indicator points to a decrease in the last month, it is still very high and is followed closely in terms of inflation pressure on the sector.

Overall, the details of the data still point to strong growth. The weakening in the headline data can be considered cyclical, after all, there was a very rapid acceleration after Covid was behind. Price pressures remain high, and this is where the real compelling effect comes from for the Fed. New orders and employment triggering the recovery support the growth outlook in terms of positive details and economy.

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