U.S. Services Index Unexpectedly Indicates Slight Contraction In May

(RTTNews) - Service sector activity in the U.S. unexpectedly saw a slight contraction in the month of May, the Institute for Supply Management revealed in a report released on Wednesday.

The ISM said its services PMI fell to 49.9 in May from 51.6 in April, with a reading below 50 indicating contraction. Economists had expected the index to inch up to 52.0.

With the unexpected decrease, the services PMI dropped to its lowest level since hitting 49.2 in June 2024, which marked the last time the index was in contraction territory.

"May's PMI level is not indicative of a severe contraction, but rather uncertainty that is being expressed broadly among ISM Services Business Survey panelists," said Steve Miller, Chair of the ISM Services Business Survey Committee.

He added, "The average reading of 50.8 percent over the last three months still indicates expansion in that time period, but it is a notable shift of 2 percentage points below its average of 52.8 percent over the previous nine months."

The surprise dip by the headline index partly reflected a notable downturn by new orders, as the new orders index tumbled to 46.4 in May from 52.3 in April. The index indicated contraction for the first time since June 2024.

The business activity index also slid to 50.0 in May from 53.7 in April, marking the index's first month out of expansion territory since May 2020.

Meanwhile, the ISM said the employment index rose to 50.7 in May from 49.0 in April, suggesting employment activity in the services sector returned to expansion after two consecutive months of contraction.

The report said the prices index also jumped to 68.7 in May from 65.1 in April, reaching its highest level since November 2022.

"Respondents continued to report difficulty in forecasting and planning due to longer-term tariff uncertainty and frequently cited efforts to delay or minimize ordering until impacts become clearer," said Miller.

A separate report released by the ISM on Monday showed its reading on U.S. manufacturing activity unexpectedly edged slightly lower in the month of May.

The ISM said its manufacturing PMI slipped to 48.5 in May from 48.7 in April, with a reading below 50 indicating contraction. Economists had expected the index to inch up to 49.5.

With the unexpected decline, the manufacturing PMI dipped to its lowest level hitting 48.4 in November 2024.