U.S. ISM Services Index (May 2026)

ISM Services Index rebounds in May on stronger demand and rising prices

• The ISM Services index rose 0.9 points to 54.5 in May from 53.6 in April, remaining firmly in expansionary territory and marking the 23rd consecutive month of growth.
• Demand improved materially, with the new orders index jumping 3.8 points to 57.3, partly reversing April’s sharp decline. 
• Current output remained firm, as business activity rose 1.8 points to 57.7, reinforcing continued resilience in service-sector production. 
• Labor market conditions remained weak, with employment slipping to 47.9, marking a third consecutive month in contraction and highlighting the persistent gap between activity and hiring.
• Price pressures intensified further, with the prices index rising to 71.3, its highest level since August 2022 and extending a long run of elevated readings. 
• Supply conditions eased modestly, with supplier deliveries improving but still indicating slower deliveries, while inventories surged sharply to a record high, pointing to strong stock building alongside rising activity.

Key Implications

• The May report points to a clear reacceleration in services demand following April’s pullback, with the rebound in new orders and sustained strength in business activity indicating that underlying demand conditions remain firm and potentially more durable than recent softness suggested. But the continued contraction in employment alongside stronger output highlights a growing imbalance between activity and hiring, reinforcing that firms remain cautious on labor amid uncertainty, even as demand conditions hold up. The sharp build in inventories also raises questions about the durability of demand, which seems to be temporarily boosted by a desire from firms to build up stockpiles. 
• At the same time, the further increase in the prices index to its highest level since 2022—alongside repeated mentions of rising fuel and energy costs by respondents—underscores that services inflation remains elevated and broad-based. The combination of resilient demand and intensifying cost pressures reinforces the risk of ongoing price pass-through, suggesting that the Fed is likely to remain patient on policy easing given limited progress on services disinflation and increasing the likelihood of rate hikes this year. 

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