(Kitco News) – The health of the U.S. economy appears mixed as the service sector saw significant improvement last month, according to the latest data from the Institute for Supply Management released Wednesday morning.
The ISM said its Services Purchasing Managers Index improved to 53.8 in May, up from April’s reading of 49.4. The data was better than expected, as economists were looking for only a slight improvement to a reading of 50.8.
“The contraction in April ended a string of 15 months of services sector growth following a composite index reading of 49 percent in December 2022; the last contraction before that was in May 2020 (45.4 percent),” said Anthony Nieves, Chair of the ISM Services Business Survey Committee, in the report.
Readings above 50 in such diffusion indexes signify economic growth and vice-versa. The farther an indicator is above or below 50, the greater or smaller the rate of change.
Gold prices fell from session highs set moments before the 10 am EDT release, with spot gold declining from $2,345.99 to $2,334.48 per ounce 15 minutes later.
The components of the report showed marked improvement across the board. The New Orders Index rose to 54.2 in May, up from the previous month’s reading of 52.2. At the same time, the Business Activity Index shot up to 61.2, compared to April’s reading of 50.9.
Inflation pressures also eased in the sector, with the Prices Index coming in at 58.1 in May, a 1.1 point decrease from April’s reading of 59.2.
The service sector labor market improved in May, but still remains in contractionary territory, with the Employment Index rising to 47.1, above the prior month’s 45.9 reading. “The Employment Index contracted for the fifth time in six months, though at a slower rate in May,” Nieves said. “Employment challenges remain, primarily attributed to difficulties in backfilling positions and controlling labor expenses.”
“Thirteen industries reported growth in May,” Nieves wrote. “The increase in the composite index in May is a result of notably higher business activity, faster new orders growth, slower supplier deliveries and despite the continued contraction in employment. Survey respondents indicated that overall business is increasing, with growth rates continuing to vary by company and industry.”
“The majority of respondents indicate that inflation and the current interest rates are an impediment to improving business conditions,” he added.
The improved showing in service sector activity comes two days after the ISM’s May Manufacturing PMI declined to 48.7%, compared to April’s reading of 49.2. The data was weaker than expected, as consensus forecasts looked for a slight improvement to 49.8.
