U.S. service providers indicated another strong rise in business activity and incoming new work during May, but both rates of expansion eased since the previous month. Nonetheless, survey respondents remain highly upbeat about their prospects for growth over the next 12 months, with the degree of business optimism rising to its strongest since November 2014. This in turn contributed to a robust and accelerated increase in service sector payroll numbers in May.
At 56.2 in May, the seasonally adjusted Markit U.S. Services Business Activity Index posted above the neutral 50.0 value for the nineteenth consecutive month. However, the latest reading was down from 57.4 in April and pointed to the slowest pace of expansion since the opening month of 2015. Mirroring the trend for business activity, service providers signalled the least marked upturn in new work for four months in May.
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) registered 56.0 in May, down from 57.0 in April but above the neutral 50.0 threshold for the nineteenth consecutive month. The latest reading indicated the slowest pace of output expansion since January.
Service providers attributed higher levels of business activity to gradually improving economic conditions and rising client demand in May. That said, the latest survey suggested a lack of pressure on operating capacity, following the recent slowdown in new business growth. Volumes of work outstanding increased only marginally, with the rate of backlog accumulation the weakest since July 2014.
In contrast to the trends seen for business activity and new work, the latest survey highlighted an accelerated pace of service sector job hiring in May. Employment growth has now picked up for five consecutive months to the highest since June 2014. Anecdotal evidence attributed extra staff recruitment to new project wins, ongoing investment plans and confidence regarding the business outlook. Service providers’ expectations for the year ahead picked up further from March’s eight-month low in May, with survey respondents generally citing hopes that economic conditions will improve in the months ahead.
Meanwhile, service sector input price inflation was little-changed from the six-month high recorded in April. Companies that reported a rise in their average costs mostly attributed this to rising fuel prices. Despite a solid increase in cost burdens, prices charged by service providers rose only marginally in May, and at the slowest pace since January.
From the Institute for Supply Management: May 2015 Non-Manufacturing ISM Report On Business® (via CalculatedRisk)
The NMI® registered 55.7 percent in May, 2.1 percentage points lower than the April reading of 57.8 percent. This represents continued growth in the non-manufacturing sector although at a slower rate. The Non-Manufacturing Business Activity Index decreased to 59.5 percent, which is 2.1 percentage points lower than the April reading of 61.6 percent, reflecting growth for the 70th consecutive month at a slower rate. The New Orders Index registered 57.9 percent, 1.3 percentage points lower than the reading of 59.2 percent registered in April.
The Employment Index decreased 1.4 percentage points to 55.3 percent from the April reading of 56.7 percent and indicates growth for the 15th consecutive month. The Prices Index increased 5.8 percentage points from the April reading of 50.1 percent to 55.9 percent, indicating prices increased in May for the third consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in May. Overall there has been a slight slowing in the rate of growth for the non-manufacturing sector. Respondents’ comments are mostly positive about business conditions and indicate economic growth will continue.