The non-manufacturing component, or the service sector, of the U.S. economy, according to a non-manufacturing ISM report released on Wednesday – decreased 0.3 percentage point in May to 51.7 percent from 52.0 in April, still indicating expansion for the second consecutive month. (Levels above 50 depict expanding conditions in the services sector)
Analysts had expected the index to fall to 51.0% however, because the reading is above 50, it indicates the services sector is expanding ; consequently reflecting an economy that is not in recession.
The Institute of Supply Management’s non-manufacturing index, an economic-direction summary covering 10 non-manufacturing indicators and based on a survey of approx. 370 purchasing and supply executives in over 62 different industries said that business activity index in May, increased 2.7 percentage points to 53.6 percent when compared to the 50.9 percent registered in April.
The New Orders Index increased 3.5 percentage points for the third consecutive month to 53.6 percent, from the 50.1 percent registered in April.
The Employment Index meanwhile, contracted 2.1 percentage points to 48.7 percent followed by Backlog of Orders Index registering 49 percent, 1 percentage point lower than the 50 percent reported in April.
Prices paid by non-manufacturing organizations for purchased materials and services increased in May for the 60th consecutive month. This is the highest level in the 11-year history of the index when excluding the Katrina event. High prices for food, energy and other commodities have kept pushing up input costs for co’s while raising the cost of living for consumers, labor costs however, remain subdued. Clearly, we are facing inflationary conditions that must be addressed. ISM’s Non-Manufacturing Prices Index came in at 77 percent, 4.9 percentage points higher than April’s index of 72.1 percent.
The sector’s expansion and robust productivity combined with The Labor Department’s report that workers productivity rose at an annual rate of 2.6 percent in the January-March period, faster than the initial estimate of 2.2 percent made a month ago, signal a U.S. economy that continues to grow and discards the inconsistent notion of a recession.
Private sector payrolls added 40K in May, the most since January. The consensus expected decline of 30K after a gain of 10,000 in April.