| Consensus | Consensus Range | Actual | Previous | |
| Index | 53.7 | 53.0 to 54.5 | 54.5 | 53.6 |
Highlights
ISM services beats expectations at 54.5 for May versus 53.7 expected and 53.6 in April. Apart from employment on the low side and prices paid on the high side, a rather upbeat report.
New orders, the forward-looking index, is up nicely to 57.3 from 53.5, a good harbinger. Current production is up to 57.7 from 55.9.
On the downside, employment is at 47.9 versus 48.0, showing a contraction in hiring. Most firms are keeping staffing flat but those with hiring freezes are letting attrition shrink their payrolls. Also unfortunate is the prices index at 71.3 versus 70.7, showing price increases are accelerating. ISM reports all the commodities it tracks showed prices up in May for the third straight month.
Also on the gloomy side, the ISM is saying rising energy prices are already depressing business activity in services.
Market Consensus Before Announcement
Services expected to show ongoing growth at 53.7 for May, nearly flat from 53.6 in April. The Econoday services business activity index points to a risk of a weaker number.
Definition
Producing a monthly composite on general activity tracked in volumes, the Institute for Supply Management surveys several hundred service-providing firms from 16 industries (construction and mining are included). The services composite index has four equally weighted components: business activity (closely related to a production index), new orders, employment, and supplier deliveries (also known as vendor performance). The first three components are seasonally adjusted but the supplier deliveries index does not have statistically significant seasonality and is not adjusted. For the composite index, a reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. The supplier deliveries component index requires extra explanation: a reading above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
Description
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the ISM services index, investors will know what the economic backdrop is for the various markets. The services index is a composite of four equally weighted components: business activity, new orders, employment, and supplier deliveries. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly -- and causing potential inflationary pressures. While the ISM manufacturing index has a long history that dates to the 1940s, this report goes back to 1997. Note that in 2020 the ISM changed the name of the report to services from non-manufacturing though it continues to track two key goods producing industries: construction and mining.
