U.S. ISM non-manufacturing index rises to 45.4 in May, sentiment to continue to rebound in months ahead

The U.S. Institute for Supply Management’s (ISM) non-manufacturing index rebounded to 45.4 in May, rising 3.6 points from April. The headline figure came in above consensus expectations of 44.4 print.

Out of the four main subcomponents, three recorded rises in May. The business activity subcomponent led the way, rising to 41 from 26. This was followed by new orders, moving higher to 41.9 from 32.9, and employment, which rose slightly to 31.8 from 30.0.

In the meantime, the supplier deliveries subcomponent saw its first fall since February, falling to 67 from 78.3. This indicates towards an acceleration in delivery times. Slower deliveries, translating to a considerable rise in this specific subcomponent, had distorted the overall index in the last two months. Trade indicators came in mixed in May. Import orders dropped 5.6 points to 43.8, reflecting softness in domestic demand, while export orders rose 5.2 points to 41.5.

The number of industries recording growth in May rose to 4 from 2 out of a total 18 industries counted in the report, noted TD Economics in a research report.

Even if the service sector activity is in the contractionary territory, the services sector is beginning to show nascent signs of a rebound from the nadir seen in April. The rate of contraction slowed as most states started a phased reopening of their economies in May, permitting non-essential businesses in the services sector to restart their activities under capacity limits. Also, the supplier deliveries sub-index dropped, indicating to a reduction in supply-chain disruptions caused by the pandemic.

“Sentiment should continue to improve as economic activity picks up gradually in the months ahead. However, while the worst of the pandemic is likely behind us, the path to full recovery will neither be easy, nor quick. Mending the tremendous blow to labor markets across the country is going to take time. Meanwhile, an uncertainty-filled outlook will likely keep a lid on business investment and consumer spending for some time as well”, added TD Economics.