Economic activity in the U.S. services sector grew in May after contracting in April for the first time in 17 months, according to the latest ISM Report On Business. The U.S. services PMI recorded 53.8, indicating expansion for the 46th time in 48 months, and an increase from April’s 49.4. The U.S. services sector’s contraction in April ended a streak of 15 months of growth following the composite index reading of 49 in December 2022.
Business activity expands despite employment challenges
The U.S. services sector’s business activity index registered 61.2 in May, higher than April’s 50.9. Meanwhile, the new orders index expanded in May for the 17th consecutive month to 54.1, higher than April’s 52.2.
However, the country’s employment index contracted for the fifth time in six months, however, at a slower pace in May, to 47.1, compared to April’s 45.9.
The report reveals that the expansion in the U.S. services sector is a result of a significant increase in business activity, faster new orders growth, and slower supplier deliveries despite the decline in employment. Firms indicated that overall business is increasing despite employment challenges persisting.
Firms across the U.S. services sector attributed the rise in employment challenges to difficulties in backfilling positions and controlling labor expenses. In addition, businesses cited inflation and the current interest rates as major factors impacting improvement in business conditions.
Read | Japan’s service sector remains strong as price inflation eases from 10-year high: PMI
Sector performance
In May, 13 industries reported growth in the U.S. services sector including the real estate, rental and leasing industry, which recorded the most growth. Then came the healthcare and social assistance industry, other services, educational services, utilities, wholesale trade, and construction among others.
Meanwhile, the five industries reporting a decline in growth in May include retail trade, agriculture, forestry, fishing and hunting, arts, entertainment and recreation, accommodation and food services, and mining.
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