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 contraction from October to December 2022, with eight months (February-September 2022) of growth before that. Of the total respondents in May, 67 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 — listed in order — are: Management of Companies & Support Services; Real Estate, Rental & Leasing; Accommodation & Food Services; Retail Trade; Information; Professional, Scientific & Technical Services; and Utilities. The five industries reporting a decrease in new export orders in May are: Mining; Construction; Wholesale Trade; Educational Services; and Transportation & Warehousing. Six industries reported no change in new export orders in May.

Imports
The Imports Index registered 50 percent — indicating unchanged status — in May, down 1.3 percentage points from April's reading of 51.3 percent. The index indicated expansion in seven of the last nine months, with the only contraction in March. Sixty-seven 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: Retail Trade; Construction; and Utilities. The five industries that reported a decrease in imports in May are: Other Services; Wholesale Trade; Educational Services; Transportation & Warehousing; and Health Care & Social Assistance. Ten industries reported no change in imports in May.

Inventory Sentiment
The ISM^® Services Inventory Sentiment Index grew substantially in May after a contraction in April, preceded by four consecutive months of growth and four months of contraction prior to that. The index registered 61 percent, a 12.1-percentage point increase from April's figure of 48.9 percent. This reading indicates that respondents feel their inventories are too high when correlated to business activity levels.

The 10 industries reporting sentiment that their inventories were too high in May — listed in order — are: Real Estate, Rental & Leasing; Wholesale Trade; Arts, Entertainment & Recreation; Utilities; Mining; Information; Retail Trade; Health Care & Social Assistance; Construction; and Management of Companies & Support Services. The four industries reporting a feeling that their inventories were too low in May are: Accommodation & Food Services; Transportation & Warehousing; Public Administration; and Professional, Scientific & Technical Services.

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 2023.

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 the BEA estimates for 2021 GDP (released December 22, 2022), the six largest services sectors are: Real Estate, Rental & Leasing; Government; 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 49.9 percent, over time, indicates that the overall economy, or gross domestic product (GDP), is generally expanding; below 49.9 percent, it is generally declining. The distance from 50 percent or 49.9 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^®) serves supply management professionals in more than 90 countries. Its 50,000 members around the world manage about US$1 trillion in corporate and government supply chain procurement annually. Founded in 1915 as the first supply management institute in the world, 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 leads the profession through the ISM^® Report On Business^®, its highly regarded certification programs and the ISM^® Advance^™ Digital Platform. This report has been issued by the association since 1931, except for a four-year interruption during World War II.

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 next Services ISM^® Report On Business^® featuring June 2023 data will be released at 10:00 a.m. ET on Thursday, July 6, 2023.

*Unless the New York Stock Exchange is closed.

SOURCE Institute for Supply Management