Services PMI® at 50.3%; May 2023 Services ISM® Report On Business®

Business Activity Index at 51.5%; New Orders Index at 52.9%; Employment Index at 49.2%; Supplier Deliveries Index at 47.7%

TEMPE, Ariz., June 5, 2023 /PRNewswire/ -- Economic activity in the services sector expanded in May for the fifth consecutive month as the Services PMI^® registered 50.3 percent, say the nation's purchasing and supply executives in the latest Services ISM^® Report On Business^®. The sector has grown in 35 of the last 36 months, with the lone contraction in December of last year.

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 50.3 percent, 1.6 percentage points lower than April's reading of 51.9 percent. The composite index indicated growth in May for the fifth consecutive month after a reading of 49.2 percent in December, which was the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 51.5 percent, a 0.5-percentage point decrease compared to the reading of 52 percent in April. The New Orders Index expanded in May for the fifth consecutive month after contracting in December for the first time since May 2020; the figure of 52.9 percent is 3.2 percentage points lower than the April reading of 56.1 percent.

"The Supplier Deliveries registered 47.7 percent, 0.9 percentage point lower than the 48.6 percent recorded in April. In the last six months, the average reading of 48.0 percent (with a low of 45.8 percent in March) reflects the fastest supplier delivery performance since June 2009, when the index registered 46 percent. (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 was down 3.4 percentage points in May, to 56.2 percent. The Inventories Index expanded in May after a month of contraction and two previous months of growth, preceded by eight straight months of contraction; the reading of 58.3 percent is up 11.1 percentage points from April's figure of 47.2 percent. The Inventory Sentiment Index (61 percent, up 12.1 percentage points from April's reading of 48.9 percent) expanded after a month of contraction preceded by four months of growth, with a four-month period of contraction before that. The Backlog of Orders Index registered 40.9 percent, an 8.8-percentage point decrease compared to the April figure of 49.7 percent and the index's lowest reading since May 2009 (40 percent).

"Eleven industries reported growth in May. The Services PMI^®, by being above 50 percent for a fifth month after a single month of contraction and a prior 30-month period of expansion, continues to indicate sustained growth for the sector. The composite index has indicated expansion for all but three of the previous 160 months."

Nieves continues, "There has been a pullback in the rate of growth for the services sector. This is due mostly to the decrease in employment and continued improvements in delivery times (resulting in a decrease in the Supplier Deliveries Index) and capacity, which are in many ways a product of sluggish demand. The majority of respondents indicate that business conditions are currently stable; however, there are concerns relative to the slowing economy."

INDUSTRY PERFORMANCE

The 11 services industries reporting growth in May — listed in order — are: Accommodation & Food Services; Management of Companies & Support Services; Professional, Scientific & Technical Services; Utilities; Retail Trade; Arts, Entertainment & Recreation; Construction; Other Services; Transportation & Warehousing; Public Administration; and Educational Services. The seven industries reporting a decrease in the month of May — listed in order — are: Mining; Agriculture, Forestry, Fishing & Hunting; Real Estate, Rental & Leasing; Wholesale Trade; Information; Health Care & Social Assistance; and Finance & Insurance.

WHAT RESPONDENTS ARE SAYING

• "Restaurant sales continue to tack positive year over year, up an average of 8 percent past month. Employment needs have leveled off, and we are in a position to evaluate and upgrade rather than just maintain. Supply chain pressures have eased overall with some categories still hot spots. We are in a position to continue investing in technology upgrades and restaurant remodels." [Accommodation & Food Services]
• "Overall slowing growth and market conditions dragging on some construction sectors." [Construction]
• "As a higher-education institute, enrollment will have a major impact on our institution. Factors to consider will be the economy (state and national), as well as continued funding for education. Our enrollment is currently projected to drop 2.5 percent, which will have a negative effect on our budget." [Educational Services]
• "Pent-up demand for services is driving strong revenue performance, but expenses (labor and supplies) continue to put pressure on margins, hindering the financial forecast. There is modest improvement in financial metrics, but it is becoming clear we will have to find ways to do more with less. Supply chains are stabilizing, though some segments remain choppy. The overall outlook, however, suggests the forecast is good for the next quarter. Pent-up demand for services is also causing capacity constraints, but we appear to be managing appropriately at this time." [Health Care & Social Assistance]
• "Electronic components supply is strong, and lead times are nearly back to pre-pandemic." [Information]
• "Economy is slowing amid increased financial banking and leasing activity. Credit standards have increased, and approvals have fallen — thus, a tight credit situation." [Management of Companies & Support Services]
• "Everything seems to have leveled off: not getting any worse, not getting any better." [Professional, Scientific & Technical Services]
• "Lead times are starting to shorten, due in part to greater transportation availability. Prices, in general, are continuing to increase but at a slower pace. Supply chain is becoming much more reliable." [Public Administration]
• "Overall business is good, and there has not been a significant change in direction." [Retail Trade]
• "Business has significantly increased, with more orders, newer customers and more activity in general. More end users are getting back to business as usual, fighting for lower prices and taking a few more days to pay. The leverage point seems to have shifted back to end users, which is healthy." [Transportation & Warehousing]
• "Business conditions continue to remain elevated as CapEx (capital expenditures) spending in clean energy follows regulatory demands." [Utilities]
• "Supply is plentiful, freight is moving quickly and costs are coming down. This is a 180-degree change from a year ago. Also, sales demand is down." [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

Automobiles; Beef; Construction Contractors; Construction Materials; Electrical Components (28); Fuel* (3); Gasoline* (4); Labor (30); Labor — Skilled (4); Transformers; and Wood Pallets.

Commodities Down in Price

Bacon; Fuel*; Gasoline*; International Freight; and Steel Products (2).

Commodities in Short Supply

Appliances (6); Construction Contractors; Construction Materials (2); Electrical Components (2); Labor (7); Labor — Construction (4); Labor — Skilled; Tourniquets (4); Transformers (9); and Vehicles (11).

Note: The number of consecutive months the commodity is listed is indicated after each item.

*Indicates both up and down in price.

MAY 2023 SERVICES INDEX SUMMARIES

Services PMI^®

In May, the Services PMI^® registered 50.3 percent, a 1.6-percentage point decrease compared to the April reading of 51.9 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 49.9 percent, over time, generally indicates an expansion of the overall economy. Therefore, the May Services PMI^® indicates the overall economy is growing for the fifth consecutive month after one month of contraction in December. Nieves says, "The past relationship between the Services PMI^® and the overall economy indicates that the Services PMI^® for May (50.3 percent) corresponds to a 0.2-percent increase in real gross domestic product (GDP) on an annualized basis."

SERVICES PMI^® HISTORY

Business Activity

ISM^®'s Business Activity Index registered 51.5 percent in May, a decrease of 0.5 percentage point from the reading of 52 percent in April, indicating growth for the 36th consecutive month. Comments from respondents include: "Business picking back up" and "Slightly higher and not all that noticeable, but all indicators show upward pressure."

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

New Orders

ISM^®'s New Orders Index registered 52.9 percent, down 3.2 percentage points from the April reading of 56.1 percent. The index indicated expansion for the fifth consecutive month after contracting in December, ending a string of 30 consecutive months of growth. Comments from respondents include: "New contracts coming online" and "New orders up with demand."

The 11 industries reporting an increase in new orders for the month of May — listed in order — are: Accommodation & Food Services; Management of Companies & Support Services; Other Services; Educational Services; Professional, Scientific & Technical Services; Utilities; Retail Trade; Construction; Transportation & Warehousing; Public Administration; and Finance & Insurance. The only industry reporting a decrease in new orders for the month of May is Wholesale Trade. Six industries reported no change in May.

Employment

Employment activity in the services sector contracted in May after three consecutive months of growth, with the index registering 49.2 percent, down 1.6 percentage points from the April figure of 50.8 percent. Comments from respondents include: "We are trying to do more with the same staff because margins in the industry have compressed" and "Our company is currently on a hiring freeze until there's a better understanding of where the economy is headed."

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

Supplier Deliveries

The Supplier Deliveries Index registered 47.7 percent, down 0.9 percentage point from the 48.6 percent recorded in April. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent indicates faster deliveries. The May reading indicates supplier deliveries are faster and at a faster rate compared to the previous month. Comments from respondents include: "No delivery performance issues; supply on goods and services all good" and "Some suppliers are increasing capacity, while others have reduced their backlogs."

The four industries reporting slower deliveries in May are: Retail Trade; Professional, Scientific & Technical Services; Educational Services; and Accommodation & Food Services. The nine industries reporting faster supplier deliveries for the month of May — listed in order — are: Mining; Wholesale Trade; Construction; Arts, Entertainment & Recreation; Transportation & Warehousing; Utilities; Information; Public Administration; and Health Care & Social Assistance.

Inventories

The Inventories Index grew in May after contracting in April, following two consecutive months of growth preceded by eight months of contraction from June 2022 to January 2023. The index indicated four months of growth from February to May 2022 and eight months of contraction from June 2021 to January 2022. The reading of 58.3 percent in May was an 11.1-percentage point increase from the 47.2 percent reported in April and the index's highest since February 2021 (58.9 percent). Of the total respondents in May, 42 percent indicated they do not have inventories or do not measure them. Comments from respondents include: "Continuing to burn down excess pandemic stock" and "In the process of reducing inventory to a more 'normal' level after having raised it during supply chain disruptions."

The seven industries reporting an increase in inventories in May — listed in order — are: Real Estate, Rental & Leasing; Construction; Arts, Entertainment & Recreation; Public Administration; Finance & Insurance; Utilities; and Professional, Scientific & Technical Services. The seven industries reporting a decrease in inventories in May — listed in order — are: Other Services; Agriculture, Forestry, Fishing & Hunting; Accommodation & Food Services; Retail Trade; Management of Companies & Support Services; Health Care & Social Assistance; and Wholesale Trade.

Prices

Prices paid by services organizations for materials and services increased in May for the 72nd consecutive month, with the index registering 56.2 percent, 3.4 percentage points lower than the 59.6 percent recorded in April. The Prices Index continues to indicate movement toward equilibrium, with an 11th consecutive reading near or below 70 percent (and three straight months below 60 percent), following 10 straight months of readings near or above 80 percent.

Twelve services industries reported an increase in prices paid during the month of May, in the following order: Public Administration; Information; Health Care & Social Assistance; Other Services; Educational Services; Arts, Entertainment & Recreation; Finance & Insurance; Wholesale Trade; Retail Trade; Construction; Utilities; and Professional, Scientific & Technical Services. The three industries reporting a decrease in prices for May are: Mining; Agriculture, Forestry, Fishing & Hunting; and Transportation & Warehousing.

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 contracted in May for the third consecutive month after a previous stretch of 26 months of growth. The index reading of 40.9 percent is 8.8 percentage points lower than the 49.7 percent reported in April and the lowest since May 2009, when it registered 40 percent. Of the total respondents in May, 50 percent indicated they do not measure backlog of orders. Respondent comments include: "Cycle time and service-level improvements" and "Materials starting to arrive with greater frequency."

The five industries reporting an increase in order backlogs in May are: Mining; Public Administration; Professional, Scientific & Technical Services; Utilities; and Retail Trade. The nine industries reporting a decrease in order backlogs in May — listed in order — are: Real Estate, Rental & Leasing; Other Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Wholesale Trade; Construction; Information; Finance & Insurance; 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 grew for the second consecutive month in May. The New Export Orders Index registered 59 percent, a 1.9-percentage point decrease from the 60.9 percent reported in April. New export orders contracted in March after two months of expansion. The index indicated contracti