According to the Institute for Supply Management’s Services Purchasing Managers’ Index, activity for May came in above market expectations, with the headline index rising to 54.5, versus the 53.7 consensus. May’s reading rose from 53.6 in the prior month. A value above 50% reflects expansion in the services sector. New orders rose 3.8 points to 57.3, signaling firm demand momentum. The employment component edged down 0.1 points to 47.9, the third consecutive monthly contraction suggesting some weakness in service-sector hiring. Prices paid increased 0.6 points to 71.3, the highest level since August 2022 and a sign that cost pressures remain highly elevated.
The ABA Office of the Chief Economist believes this month’s solid reading points to the services sector’s continued resilience against the surge in energy costs for businesses. Overall activity remained in expansion and is firmly above year-ago levels. Strong services business activity will continue to support loan demand, but elevated costs and weakening labor demand will have negative implications for consumer lending.
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