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The numbers: Most U.S. businesses grew at a slower pace in May as customer demand leveled off, a new survey showed. The ISM services index fell to a five-month low of 50.3% last month.
The Institute for Supply Management’s index of service-oriented businesses dropped from 51.9% in April.
Numbers above 50% indicate companies are expanding, but the U.S. economy has slowed markedly from a year ago. Economists polled by The Wall Street Journal had expected the services index to rise to 51.8%.
The closely followed ISM reports are the first major indicators of each month to offer clues on how well the economy is performing.
The much larger service side of the economy — retail, health care, travel and so forth — shows stable if softer growth. Most Americans work in services.
The smaller though still important manufacturing sector is in a slump of sorts and shows little sign of emerging.
“Everything seems to have leveled off,” a senior executive at a professional company told ISM. “Not getting any worse, not getting any better.”
Key details:
- The production gauge dipped 0.5 points to 51.5%, the lowest level since the onset of the pandemic in early 2020.
- The new-orders index declined 3.2 points to 52.9%.
- The employment barometer slipped 1.6 points to 49.2% and turned negative for the first time in 2023.
- The prices-paid index, a measure of inflation, dropped to 56.2% and hit the lowest level since 2020. “More end users are getting back to business as usual, fighting for lower prices and taking a few more days to pay,” a transportation executive told ISM.
Big picture: Americans are spending lots of money to eat out, travel and entertain themselves. That’s kept the U.S. economy growing and out of recession.
Many economists don’t think it can last. They expect that higher interest rates orchestrated by the Federal Reserve to quell inflation will slow the economy and boost unemployment.
The U.S. unemployment rate jumped to 3.7% in May from 3.4%, but it remains to be seen if it’s the start of rising layoffs or just a short-term blip. The jobless rate is still near the lowest level in more than 50 years.
What’s more, the economy added a whopping 339,000 jobs in May and other measures of the labor market still show strong demand for workers in most service-style industries.
Looking ahead: “The majority of respondents indicate that business conditions are currently stable,” said Anthony Nieves, chairman of the survey. “However, there are concerns relative to the slowing economy.”
“The ISM PMI surveys, and especially their prices paid components, make it more likely that the Federal Reserve chooses to hold interest rates steady at their next decision June 14, and reduces the likelihood that they make additional interest rate hikes later this year,” said Bill Adams, chief economist at Comerica.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were little changed in Monday trades.
