ISM Non-Manufacturing Activity Continues to Decelerate in May

The ISM Non-Manufacturing Index for May fell to 55.9% (consensus 56.6%) from 57.1% in April, slowing for the second straight month as businesses continued to wrestle with pricing pressures, supply chain issues, and labor supply constraints. The 12-month average is 61.2 percent, which reflects consistently strong growth in the services sector. The May composite index indicated growth for the 24th consecutive month after a two-month contraction in April and May 2020. but it is the lowest reading since February 2021.

via Cheatsheet

The dividing line between expansion and contraction is 50.0%.

““The Prices Index dropped from the all-time high of 84.6 percent in April, decreasing 2.5 percentage points to 82.1 percent. Services businesses continue to struggle to replenish inventories, as the Inventories Index grew, but at a slower rate. The reading of 51 percent is down 1.3 percentage points from April’s figure of 52.3 percent. The Inventory Sentiment Index (44.5 percent, down 2.2 percentage points from April’s reading of 46.7 percent) contracted in May for the third consecutive month, indicating that inventories are in ‘too low’ territory and insufficient for current business requirements.”

– Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management

Highlights

  • The New Orders Index increased to 57.6% from 54.6%.
  • The Production Index fell to 54.5% from 59.1%.
  • The Prices Index dropped to 82.1% from a record 84.6%.
  • The Employment Index moved up to 50.2% from 49.5%.
  • The Supplier Deliveries Index increased dropped to 61.3% from 65.1%.
  • The Backlog of Orders Index fell to 52.0% from 59.4%. 

WHAT RESPONDENTS ARE SAYING

“Supply chain improving, with more reliability of supplier deliveries. Inflationary pressures increased on goods and services. Employment also improving in most markets. Fewer daily fires and more planning time.” [Accommodation & Food Services]

“Demand seems to be very high for all of the high-voltage electric products we purchase. Lead times are quadruple what they normally are.” [Construction]

“Long lead times continue to plague equipment deliveries; higher prices or surcharges added to pricing proposals. The ban on Russian imports is causing a shortage of gasses, especially helium. There has been an increase in new college applicants, signaling a strengthening of the higher education sector.” [Educational Services]

“The paper industry is still being hampered by employment issues, freight costs and scarcity of truckers, as well as the war in Ukraine. European paper sent to North America is being slashed due to the war and the lack of fiber, along with high energy costs. Mills in North America are still struggling to keep up with demand.” [Information]

“Unstable prices on various commodities are making budgetary planning difficult. We are maintaining a cautious approach due to energy costs continuing to increase.” [Management of Companies & Support Services]

“Demand for all labor types remains strong, as open positions continue to exceed candidates to fill those positions. Light industrial, heavy industrial and information technology labor roles are particularly difficult to fill. Companies are having to pay more and offer incentives to attract talent. Resignations continue at a record pace across all age groups, and baby boomer retirements continue to increase.” [Professional, Scientific & Technical Services]

“Concerns about how the new COVID-19 subvariants and rising cases may impact staffing.” [Public Administration]

“Chip shortage showing no signs of easing.” [Retail Trade]

“Exhausting. Continuous shortages, transportation delays and price increases all contribute to the destruction of historical lead times and firm commitments on delivery dates. This requires placing orders earlier and qualifying secondary sources. It is relentless.” [Utilities]

“National consumer and builder demand continues to drive sales domestically. COVID-19 in China continues to affect our supply chain more than the Russia-Ukraine war.” [Wholesale Trade]

COMMODITIES REPORTED UP/DOWN IN PRICE AND IN SHORT SUPPLY

Commodities Up in Price

Airfares; Aluminum (2); Aluminum Products (6); Beef; Benefits; Cable; Caustic Soda; Cheese; Chemicals (2); Chicken (9); Chlorine Liquid; Construction Materials; Dairy Products (2); Diesel Exhaust Fluid; Diesel Fuel (18); Electrical Components (16); Electricity; Electronic Components (6); Energy; Engine Components; Fish; Food and Beverages (2); Food Products (3); Freight (13); Fuel (17); Fuel Related Products (3); Gasoline (18); Hotel Rates; Labor (18); Labor — Temporary (4); Natural Gas (3); Office and Computer Supplies (3); Paper (4); Paper Products (6); Petroleum (3); Plastic Products (10); Polyvinyl Chloride (PVC) Products (9); Resin; Rubber Products; Shipping Costs (2); Steel Products* (17); Transportation Costs (4); Travel; Vehicles; and Wood Items.

Commodities Down in Price

Copper Products; and Steel Products*.

Commodities in Short Supply

Appliances (3); Baby Formula; Chemicals; Coated Freesheet; Construction Materials; Contrast Media; Diesel Fuel; Electrical Components (2); Electronic Components (6); Food and Beverages; Food Service Equipment; Groundwood Paper; Labor (10); Labor — Temporary (3); Microchips; Needles and Syringes (5); Paper Products (3); Semiconductors (2); Steel; Steel Products; Transformers; Vehicles; and Wire and Cable.

Note: The number of consecutive months the commodity is listed is indicated after each item.
*Indicates both up and down in price.


SERVICES PMI® HISTORY

Month Services PMI®
May 2022 55.9
Apr 2022 57.1
Mar 2022 58.3
Feb 2022 56.5
Jan 2022 59.9
Dec 2021 62.3
Nov 2021 68.4
Oct 2021 66.7
Sep 2021 62.6
Aug 2021 62.2
Jul 2021 64.1
Jun 2021 60.7

Average for 12 months – 61.2
High – 68.4
Low – 55.9


Business Activity

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

New Orders

Fifteen industries reported growth of new orders in May, in the following order: Construction; Arts, Entertainment & Recreation; Educational Services; Mining; Management of Companies & Support Services; Real Estate, Rental & Leasing; Utilities; Professional, Scientific & Technical Services; Wholesale Trade; Transportation & Warehousing; Accommodation & Food Services; Finance & Insurance; Other Services; Health Care & Social Assistance; and Public Administration. The two industries reporting a decrease in new orders in May are: Agriculture, Forestry, Fishing & Hunting; and Information.
New Orders % Higher % Same % Lower Index

Employment

The nine industries reporting an increase in employment in May — listed in order — are: Mining; Construction; Accommodation & Food Services; Transportation & Warehousing; Other Services; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Wholesale Trade; and Health Care & Social Assistance. The six industries reporting a decrease in employment in May — listed in order — are: Retail Trade; Finance & Insurance; Agriculture, Forestry, Fishing & Hunting; Information; Management of Companies & Support Services; and Public Administration.
Employment % Higher % Same % Lower Index

Supplier Deliveries

The 15 industries reporting slower deliveries in May — listed in order — are: Mining; Real Estate, Rental & Leasing; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Transportation & Warehousing; Educational Services; Utilities; Wholesale Trade; Construction; Health Care & Social Assistance; Public Administration; Finance & Insurance; Information; Other Services; and Professional, Scientific & Technical Services. The only industry reporting faster supplier deliveries in May is Retail Trade.

Inventories

The seven industries reporting an increase in inventories in May — listed in order — are: Accommodation & Food Services; Transportation & Warehousing; Retail Trade; Wholesale Trade; Utilities; Construction; and Professional, Scientific & Technical Services. The seven industries reporting a decrease in inventories in May — listed in order — are: Mining; Management of Companies & Support Services; Agriculture, Forestry, Fishing & Hunting; Educational Services; Public Administration; Information; and Health Care & Social Assistance.

Prices

All 18 services industries reported an increase in prices paid during the month of May, in the following order: Arts, Entertainment & Recreation; Mining; Construction; Management of Companies & Support Services; Accommodation & Food Services; Transportation & Warehousing; Real Estate, Rental & Leasing; Wholesale Trade; Other Services; Public Administration; Educational Services; Finance & Insurance; Retail Trade; Information; Professional, Scientific & Technical Services; Health Care & Social Assistance; Utilities; and Agriculture, Forestry, Fishing & Hunting.

Backlog of Orders

The eight industries reporting an increase in order backlogs in May — listed in order — are: Management of Companies & Support Services; Accommodation & Food Services; Utilities; Wholesale Trade; Transportation & Warehousing; Educational Services; Construction; and Professional, Scientific & Technical Services. The six industries reporting a decrease in order backlogs in May — listed in order — are: Arts, Entertainment & Recreation; Mining; Agriculture, Forestry, Fishing & Hunting; Information; Public Administration; and Health Care & Social Assistance.

New Export Orders

The six industries reporting an increase in new export orders in May — listed in order — are: Mining; Real Estate, Rental & Leasing; Accommodation & Food Services; Utilities; Retail Trade; and Transportation & Warehousing. The four industries reporting a decrease in new export orders in May are: Construction; Information; Educational Services; and Professional, Scientific & Technical Services. Eight industries indicated no change in new export orders in May.

Imports

The five industries reporting an increase in imports for the month of May are: Retail Trade; Mining; Transportation & Warehousing; Utilities; and Wholesale Trade. The four industries that reported a decrease in imports in May are: Agriculture, Forestry, Fishing & Hunting; Other Services; Accommodation & Food Services; and Health Care & Social Assistance. Nine industries reported no change in imports in May.

Inventory Sentiment

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

About Services PMI®

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.

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 next Services ISM® Report On Business® featuring June 2022 data will be released at 10:00 a.m. ET on Wednesday, July 6, 2022.

Source: ISM World

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