Thursday, June 3, 2021 07:39 AM
  • ISM orders, activity indexes pick up from month earlier
  • Measure of order backlogs also highest in data to 1997

U.S. service providers expanded at the fastest pace on record in May, highlighting the rapid improvement in business activity across the economy.

The Institute for Supply Management’s services index rose to 64 last month — the highest in data back to 1997 — from 62.7 in April, data showed Thursday. Readings above 50 signal growth, and the gauge exceeded the median projection in a Bloomberg survey of economists.

The figures underscore rising demand for a host of services like air travel, hotel stays and meals out as social activity picks up and pandemic restrictions ease. Pent-up consumer demand and steady business investment should provide plenty of juice for the recovery in the months ahead, but challenges remain.

Similar to the group’s manufacturing survey, the report showed elevated price pressures, growing order backlogs and softening in the pace of hiring. Limited availability of both materials and skilled workers risks tempering the pace of economic growth.

“The rate of expansion is very strong, as businesses have reopened and production capacity has increased,” Anthony Nieves, chair of the ISM’s Services Business Survey Committee, said in a statement. “However, some capacity constraints, material shortages, weather-related delays, and challenges in logistics and employment resources continue.”

All 18 services industries reported growth in May, led by retailers, wholesalers, construction firms and entertainment and recreation providers.

The index of prices paid for materials advanced to the second-highest level on record as the gauge of order backlogs at service providers climbed to a record. Supplier delivery times lengthened.

The ISM’s measure of services employmentslipped in May to a still-strong 55.3 from 58.8 a month earlier. Earlier this week, the group said its factory employment index fell to a six-month low.

“Even if all the businesses right now tried to reopen everything tomorrow, they couldn’t do it because they have capacity issues,” Nieves said on a call with reporters. “They don’t have the labor. They don’t have the production capabilities.”

Friday’s employment report is forecast to show the U.S. added more than 660,000 jobs in May, more than double April’s gain.

Select ISM Industry Comments

“Stimulus money, increased vaccinations, increased dining capacity and pent-up demand are driving a fast recovery for dine-in restaurants — and all consumer segments, it seems — resulting in labor shortages and supply chain gaps.” – Accommodation & Food Services

“We are still busy and adding employees. One of the biggest concerns now is shortages of crucial material and equipment.” -Construction

“Transportation, labor, steel and general commodities are all increasing (in price) based upon general inflation and the rising price of oil.” – Mining

“Container delays are impacting our supply chain in a significant way … Truck availability has generally been tighter than normal.” – Agriculture & Forestry

“Business is very strong, and customer orders continue to increase at a rapid pace. Material shortages, increased prices and qualified personnel shortages are becoming a much larger concern.” – Real Estate & Leasing

A separate report Thursday from the ADP Research Institute showed private employers added 978,000 workers to payrolls in May. The gain was driven by a large increase in employment within leisure and hospitality.

At the same time, the ISM’s gauge of business activity — which parallels the group’s factory production measure — rose to 66.2 in May, close to a record high.

In a sign of improving global demand, the ISM measure of export orders rose to the highest level since 2018.