US Services Gauge Retreats as Business Activity Growth Slows

(Bloomberg) — Growth at US service providers moderated in May to the softest pace in over a year, reflecting a pullback in a measure of business activity that suggests persistent supply constraints.

Most Read from Bloomberg

The Institute for Supply Management’s gauge of services decreased to 55.9 last month from 57.1 in April, according to data released Friday. While still firmly above the threshold of 50 that signals expansion, it was the weakest print since February 2021.

The gauge of business activity — which parallels the ISM’s measure of factory production — declined 4.6 points to a two-year low of 54.5 last month. However, the index of new orders, another gauge of demand, climbed in May to 57.6.

“The mix of components as well as the comments from respondents suggest that firms are plagued more by ongoing supply constraints than a moderation of demand,” Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note.

The median forecast in a Bloomberg survey called for 56.5. Fourteen services industries reported growth last month, led by mining, construction and real estate.

Consumers have so far continued to spend in the face of surging prices, but high inflation — including record-high gasoline prices — paired with rising borrowing costs threaten to temper discretionary spending in the months ahead.

The ISM survey showed the index of prices paid by service providers eased to a still-elevated reading of 82.1, while the employment index edged higher. Even so, it’s barely above 50.

The services report follows ISM data earlier this week that showed an unexpected firming of manufacturing growth, underscoring the various crosscurrents at play in the US economy. Price pressures are still prevalent and the labor market remains tight, though there are some signs that both are starting to ease.

Story continues

Select ISM Industry Comments

“Supply chain improving, with more reliability of supplier deliveries. Inflationary pressures increased on goods and services. Employment also improving in most markets.” – Accommodation & Food Services

“Lead times are quadruple what they normally are.” – Construction

“The paper industry is still being hampered by employment issues, freight costs and scarcity of truckers, as well as the war in Ukraine…Mills in North America are still struggling to keep up with demand.” – Information

“Demand for all labor types remains strong, as open positions continue to exceed candidates to fill those positions…Companies are having to pay more and offer incentives to attract talent. “ – Professional, Scientific & Technical Services

“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

The group’s measure of order backlogs slumped 7.4 points to 52, suggesting supply is moving more in line with demand.

(Adds graphic, industry comments)

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.