U.S. ISM Services Index (May 2024)

ISM shows services sector returned to expansion in May

• The ISM Services index jumped to 53.8 in May from 49.4 in April, well ahead of the 51.0 consensus expectation. Growth was widespread, with 13 of 18 industries reporting growth for the month – up from 12 in April. 
• The business activity sub-index surged to 61.2 (from 50.9 in April), while the new orders index ticked up to 54.1 from 52.2 in April. 
• The prices paid sub-component stepped back to 58.1 percentage points (pp) from 59.2 in April, while the supplier deliveries sub-index rose 4.2 pp to 52.7 – indicating longer delivery times compared to April. 
• The employment sub-component remained in contraction, albeit at a slower pace, rising 1.2 pp to 47.1.   

Key Implications

• Well, May's ISM sure provided a strong print for the services sector, blowing past expectations and signaling a bounce-back from a soft patch in April. Healthy gains across most sub-components leaves only the employment sub-component in contractionary territory. 
• The JOLTS figures this week alongside last week's softening consumer spending figures suggests that some of the momentum in the economy might be waning. However, May's revival in the service sector (that has been the key source of inflationary pressure in the economy) raises concerns that April may have been just a blip. This leaves all eyes focused on Friday's payrolls release for any sign that April was not a one-off, and that hiring has shifted into a lower gear.     

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