Services PMI® at 53.8%; May 2024 Services ISM® Report On Business®

Business Activity Index at 61.2%; New Orders Index at 54.1%; Employment Index at 47.1%; Supplier Deliveries Index at 52.7%

TEMPE, Ariz., June 5, 2024 /PRNewswire/ — Economic activity in the services sector grew in May after contracting in April for the first time since December 2022, say the nation’s purchasing and supply executives in the latest Services ISM^® Report On Business^®. The Services PMI^® registered 53.8 percent, indicating sector expansion for the 46th time in 48 months.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management^® (ISM^®) Services Business Survey Committee: “In May, the Services PMI^® registered 53.8 percent, 4.4 percentage points higher than April’s reading of 49.4 percent. The contraction in April ended a string of 15 months of services sector growth following a composite index reading of 49 percent in December 2022; the last contraction before that was in May 2020 (45.4 percent). The Business Activity Index registered 61.2 percent in May, which is 10.3 percentage points higher than the 50.9 percent recorded in April. The New Orders Index expanded in May for the 17th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 54.1 percent is 1.9 percentage points higher than the April reading of 52.2 percent. The Employment Index contracted for the fifth time in six months, though at a slower rate in May with a reading of 47.1 percent, a 1.2-percentage point increase compared to the 45.9 percent recorded in April.

“The Supplier Deliveries Index registered 52.7 percent, 4.2 percentage points higher than the 48.5 percent recorded in April. The index went into expansion territory — indicating slower supplier delivery performance — in May for the first time since January. (Supplier Deliveries is the only ISM^® Report On Business^® index that is inversed; a reading of above 50 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

“The Prices Index registered 58.1 percent in May, a 1.1-percentage point decrease from April’s reading of 59.2 percent. The Inventories Index grew in May for the second consecutive month after four previous months of contraction, registering 52.1 percent, a decrease of 1.6 percentage points from April’s figure of 53.7 percent. The Inventory Sentiment Index (57.7 percent, down 5.2 percentage points from April’s reading of 62.9 percent) expanded for the 13th consecutive month. The Backlog of Orders Index grew in May for the second consecutive month after contracting in March, registering 50.8 percent, a 0.3-percentage point decrease compared to the April reading of 51.1 percent.

“Thirteen industries reported growth in May. The Services PMI^® — after a contraction in April preceded by 15 consecutive months of growth after a contraction in December 2022 and 30 months of expansion before that — has indicated sustained growth for the sector. The reading of 53.8 percent in May reflects month-over-month growth.”

Nieves continues, “The increase in the composite index in May is a result of notably higher business activity, faster new orders growth, slower supplier deliveries and despite the continued contraction in employment. Survey respondents indicated that overall business is increasing, with growth rates continuing to vary by company and industry. Employment challenges remain, primarily attributed to difficulties in backfilling positions and controlling labor expenses. The majority of respondents indicate that inflation and the current interest rates are an impediment to improving business conditions.”

INDUSTRY PERFORMANCE
The 13 services industries reporting growth in May — listed in order — are: Real Estate, Rental & Leasing; Health Care & Social Assistance; Other Services; Educational Services; Utilities; Wholesale Trade; Construction; Transportation & Warehousing; Public Administration; Management of Companies & Support Services; Finance & Insurance; Information; and Professional, Scientific & Technical Services. The five industries reporting a decrease in the month of May are: Retail Trade; Agriculture, Forestry, Fishing & Hunting; Arts, Entertainment & Recreation; Accommodation & Food Services; and Mining.

WHAT RESPONDENTS ARE SAYING

• “The last month has brought a level of stability not seen is some time. Recent news of the Biden administration’s tariff actions is of high concern on disruption, with little information on the exclusion process when it comes to which materials and products will actually be impacted.” [Accommodation & Food Services]
• “Higher interest rates are reducing capital investment and slowing down major facility upgrades.” [Agriculture, Forestry, Fishing & Hunting]
• “Residential construction continues to struggle, with high mortgage rates on the for-sale side. Higher interest rates are driving up the cost of capital and making ‘build to rent’ projects harder to pencil. Building season is getting into full swing, but higher lumber prices — especially oriented strand board (OSB) panels — have pinched margins.” [Construction]
• “Some items continue to be hard to keep at proper levels in inventory: syringes, sterile water and normal saline. Some paper towels for dispensers are even being back-ordered.” [Health Care & Social Assistance]
• “Companies in most industries continue to be deliberate with employee and nonemployee labor hiring decisions. Concerns about the upcoming election loom large, as well as uncertainty around the current economic climate, particularly inflation.” [Management of Companies & Support Services]
• “General uncertainty regarding the U.S. Federal Reserve’s position on future interest rates and the current political environment is affecting consumer sentiment.” [Professional, Scientific & Technical Services]
• “Continuing apprehension regarding construction contractors’ capacity and increasing price of projects. Often, bid prices are exceeding engineer and budget estimates.” [Public Administration]
• “Slowdown in economy being felt.” [Retail Trade]
• “In general, business has been steady. Hiring is slowing and prices are slightly climbing.” [Transportation & Warehousing]
• “We are making adjustments to our employment level, capital investing strategies, and managing borrowed debt to achieve our 2024 financial goals.” [Utilities]
• “High food costs having an impact on customer demand and resulting in flat business overall. Business activity stable. Supplier costs continue to soften.” [Wholesale Trade]

Services ISM^® Report On Business^® data is seasonally adjusted for the Business Activity, New Orders, Employment and Prices indexes. Manufacturing ISM^® Report On Business^® data is seasonally adjusted for New Orders, Production, Employment and Inventories indexes.

*Number of months moving in current direction.

COMMODITIES REPORTED UP/DOWN IN PRICE, AND IN SHORT SUPPLY

Commodities Up in Price
Aluminum; Construction Contractors (5); Copper Based Products; Copper Tubing; Copper Wire (3); Diesel Fuel (3); Food and Beverages (2); Fuel* (4); Gasoline (4); Heating, Ventilation and Air Conditioning (HVAC) Equipment (4); Labor (42); Labor — Technical; and Software.

Commodities Down in Price
Fuel*; Lumber; and Steel Products.

Commodities in Short Supply
Appliances; Construction Contractors; Labor (4); Labor — Construction; Switchgear (3); and Syringes.

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.

MAY 2024 SERVICES INDEX SUMMARIES

Services PMI^®
In May, the Services PMI^® registered 53.8 percent, a 4.4-percentage point increase compared to the April reading of 49.4 percent. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates it is generally contracting.

A Services PMI^® above 49 percent, over time, generally indicates an expansion of the overall economy. Therefore, the May Services PMI^® indicates the overall economy is growing for the 17th consecutive month. Nieves says, “The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for May (53.8 percent) corresponds to a 1.6-percent increase in real gross domestic product (GDP) on an annualized basis.”

SERVICES PMI^® HISTORY

Business Activity
ISM^®‘s Business Activity Index registered 61.2 percent in May, 10.3 percentage points higher than the 50.9 percent recorded in April, indicating growth for the 48th consecutive month. This is the index’s highest reading since November 2022 (61.2 percent). The Business Activity Index has been in expansion territory since recovering from its coronavirus pandemic lows. Comments from respondents include: “Increased outpatient and inpatient volume” and “More requests for services and components.”

The 13 industries reporting an increase in business activity for the month of May — listed in order — are: Real Estate, Rental & Leasing; Transportation & Warehousing; Other Services; Accommodation & Food Services; Health Care & Social Assistance; Management of Companies & Support Services; Educational Services; Wholesale Trade; Utilities; Construction; Public Administration; Finance & Insurance; and Professional, Scientific & Technical Services. The three industries reporting a decrease in business activity for the month of May are: Mining; Arts, Entertainment & Recreation; and Agriculture, Forestry, Fishing & Hunting.

New Orders
ISM^®‘s New Orders Index registered 54.1 percent in May, 1.9 percentage points higher than the reading of 52.2 percent registered in April. The index indicated expansion for the 17th consecutive month after a contraction in December 2022 and 30 straight months of growth before that. Comments from respondents include: “Placing new orders for second half of year volumes” and “We are seeing increased sales orders from our customers.”

The 10 industries reporting an increase in new orders for the month of May — listed in order — are: Other Services; Wholesale Trade; Educational Services; Utilities; Finance & Insurance; Health Care & Social Assistance; Transportation & Warehousing; Public Administration; Information; and Construction. The three industries reporting a decrease in new orders for the month of May are: Arts, Entertainment & Recreation; Retail Trade; and Professional, Scientific & Technical Services.

Employment
Employment activity in the services sector contracted in May for the fifth time in six months, preceded by six consecutive months of growth from June to November. The Employment Index registered 47.1 percent, up 1.2 percentage points from the April figure of 45.9 percent. Comments from respondents include: “Holding on filling vacancies” and “Very small incremental increase, probably due to long-term understaffing.”

The seven industries reporting an increase in employment in May — listed in order — are: Construction; Mining; Wholesale Trade; Utilities; Health Care & Social Assistance; Public Administration; and Professional, Scientific & Technical Services. The seven industries reporting a decrease in employment in May, listed in order are: Retail Trade; Transportation & Warehousing; Real Estate, Rental & Leasing; Other Services; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance; and Educational Services.

Supplier Deliveries
In May, the Supplier Deliveries Index indicated slower performance in May for only the third time in 18 months. The index registered 52.7 percent, up 4.2 percentage points from the 48.5 percent recorded in April and its highest figure since November 2022 (53.8 percent). A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. Comments from respondents include: “Using secondary carriers for products and experiencing delays in deliveries” and “Manufacturers are still not meeting their stated lead times.”

The four industries reporting slower deliveries in May are: Real Estate, Rental & Leasing; Health Care & Social Assistance; Educational Services; and Utilities. The six industries reporting faster supplier deliveries for the month of May — listed in order — are: Accommodation & Food Services; Agriculture, Forestry, Fishing & Hunting; Wholesale Trade; Retail Trade; Construction; and Public Administration. Eight industries reported no change in May.

Inventories
The Inventories Index grew in May for the second consecutive month and after four months of contraction from December to March. The reading of 52.1 percent was a 1.6-percentage point decrease compared to the 53.7 percent reported in April. Of the total respondents in May, 42 percent indicated they do not have inventories or do not measure them. Comments from respondents include: “Keeping inventory levels manageable, with the perceived outlook of slightly improving pricing conditions within the next 12 to 18 months” and “Increasing stock of core product for summer month volume increases.”

The six industries reporting an increase in inventories in May — in the following order — are: Mining; Real Estate, Rental & Leasing; Construction; Educational Services; Transportation & Warehousing; and Wholesale Trade. The five industries reporting a decrease in inventories in May are: Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Information; Professional, Scientific & Technical Services; and Health Care & Social Assistance. Seven industries reported no change in inventories in May.

Prices
Prices paid by services organizations for materials and services increased in May for the 84th consecutive month. The Prices Index registered 58.1 percent, 1.1 percentage points lower than the 59.2 percent registered in April. The May reading is the 23rd in a row near or below 70 percent (including 13 of the last 14 months at or below 60 percent), following 10 straight months of readings near or above 80 percent from September 2021 to June 2022.

Fourteen services industries reported an increase in prices paid during the month of May, in the following order: Construction; Other Services; Public Administration; Wholesale Trade; Health Care & Social Assistance; Finance & Insurance; Management of Companies & Support Services; Educational Services; Professional, Scientific & Technical Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Information; Retail Trade; and Utilities. No industry reported a decrease in prices for the month of May.

NOTE: Commodities reported as up in price and down in price are listed in the commodities section of this report.

Backlog of Orders
The ISM^® Services Backlog of Orders Index grew in May for the second consecutive month after a contraction in April, preceded by two consecutive months of expansion and two months of contraction before that. The index reading of 50.8 percent is 0.3 percentage point lower than the 51.1 percent reported in April. Of the total respondents in May, 44 percent indicated they do not measure backlog of orders. Respondent comments include: “Because of the volume increases, we are seeing more back orders across the board” and “Few or no back orders at this time.”

The seven industries reporting an increase in order backlogs in May, in order, are: Educational Services; Real Estate, Rental & Leasing; Information; Finance & Insurance; Construction; Utilities; and Professional, Scientific & Technical Services. The six industries reporting a decrease in order backlogs in May — in the following order — are: Retail Trade; Public Administration; Agriculture, Forestry, Fishing & Hunting; Management of Companies & Support Services; Transportation & Warehousing; and Health Care & Social Assistance.

New Export Orders
Orders and requests for services and other non-manufacturing activities to be provided outside of the U.S. by domestically based companies increased in May after contracting in April and expanding for 11 of the 12 months before that, with the lone contraction in October. The New Export Orders Index registered 61.8 percent, a 13.9-percentage point increase from the 47.9 percent reported in April. Of the total respondents in May, 77 percent indicated they do not perform, or do not separately measure, orders for work outside of the U.S.

The seven industries reporting an increase in new export orders in May — in the following order — are: Real Estate, Rental & Leasing; Retail Trade; Other Services; Finance & Insurance; Transportation & Warehousing; Wholesale Trade; and Professional, Scientific & Technical Services. The two industries reporting a decrease in new export orders in May are: Mining; and Information. Nine industries reported no change in new export orders in May.

Imports
The Imports Index contracted in May, registering 42.8 percent, 10.8 percentage points lower than the 53.6 percent reported in April and the lowest reading since March 2020 (40.2 percent). The index has indicated expansion in 17 of the last 21 months, with the previous contractions in March and December 2023 and an “unchanged” status (a reading of 50 percent) in May 2023. Sixty-five percent of respondents reported that they do not use, or do not track the use of, imported materials.

The three industries reporting an increase in imports for the month of May are: Accommodation & Food Services; Information; and Professional, Scientific & Technical Services. The three industries reporting a decrease in imports in May are: Real Estate, Rental & Leasing; Retail Trade; and Agriculture, Forestry, Fishing & Hunting. Twelve industries reported no change in imports in May.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index grew for the 13th consecutive month in May after one month of contraction in April 2023, preceded by four consecutive months of growth and four months of contraction from August to November 2022. The index registered 57.7 percent, a 5.2-percentage point decrease from April’s figure of 62.9 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.

The 12 industries reporting sentiment that their inventories were too high in May — listed in order — are: Real Estate, Rental & Leasing; Mining; Retail Trade; Wholesale Trade; Educational Services; Finance & Insurance; Other Services; Agriculture, Forestry, Fishing & Hunting; Health Care & Social Assistance; Utilities; Construction; and Management of Companies & Support Services. The two industries reporting a feeling that their inventories were too low in May are: Professional, Scientific & Technical Services; and Information.

About This Report
DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report’s information reflects the entire U.S., while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of May 2024.

The data presented herein is obtained from a survey of supply executives in the services sector based on information they have collected within their respective organizations. ISM^® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation
The Services ISM^® Report On Business^® (formerly the Non-Manufacturing ISM^® Report On Business^®) is based on data compiled from purchasing and supply executives nationwide. Membership of the Services Business Survey Committee (formerly Non-Manufacturing Business Survey Committee) is diversified by NAICS, based on each industry’s contribution to gross domestic product (GDP). The Services Business Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services (services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities; Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services). The data are weighted based on each industry’s contribution to GDP. According to BEA estimates (the average of the fourth quarter 2022 GDP estimates and the GDP estimates for first, second, and third quarter 2023, as released on December 21, 2023), the six largest services sectors are: Real Estate, Rental & Leasing; Public Administration; Professional, Scientific, & Technical Services; Health Care & Social Assistance; Information; and Finance & Insurance.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage reporting each response and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The Services PMI^® is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

A Services PMI^® above 49 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 49 percent, it is generally declining. The distance from 50 percent or 49 percent is indicative of the strength of the expansion or decline.

The Services ISM^® Report On Business^® survey is sent out to Services Business Survey Committee respondents the first part of each month. Respondents are asked to ONLY report on U.S. operations for the current month. ISM^® receives survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses to give the most accurate picture of current business activity. ISM^® then compiles the report for release on the third business day of the following month.

The industries reporting growth, as indicated in the Services ISM^® Report On Business^® monthly report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases, those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.

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About Institute for Supply Management^®
Institute for Supply Management^® (ISM^®) is the first and leading not-for-profit professional supply management organization worldwide. Its community of more than 50,000 in more than 100 countries manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 by practitioners, ISM is committed to advancing the practice of supply management to drive value and competitive advantage for its members, contributing to a prosperous and sustainable world. ISM empowers and leads the profession through the ISM^® Report On Business^®, its highly-regarded certification and training programs, corporate services, events, and assessments. The ISM^® Report On Business^®, Manufacturing, Services, and Hospital, are three of the most reliable economic indicators available, providing guidance to supply management professionals, economists, analysts, and government and business leaders. For more information, please visit: www.ismworld.org. 

The full text version of the Services ISM^® Report On Business^® is posted on ISM^®‘s website at www.ismrob.org on the third business day* of every month after 10:00 a.m. ET. The one exception is in January, the report is released on the fourth business day of the month.

The next Services ISM^® Report On Business^® featuring June 2024 data will be released at 10:00 a.m. ET on Wednesday, July 3, 2024.

*Unless the New York Stock Exchange is closed.

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SOURCE Institute for Supply Management