ISM® PMI® Reports Roundup: May Services
There were a lot of moving parts in the ISM® Services PMI® Report for May — most notably, continuing uncertainties related to the conflict in Iran — but the engine of the sector that makes up most of the U.S. economy is still humming.
Companies boosted inventory levels to a record-tying high amid confidence of sustained demand, though employment has yet to keep up, as the AI impact on jobs and other dynamics becomes more evident. It added up to a Services PMI® reading of 54.4 percent, which could have been slightly better; of 18 industries, the only one to contract in May was Real Estate, Rental & Leasing, the largest based on share of sector gross domestic product (GDP).
“The significant increase in inventories was in line with plans, not a reaction to disruption,” Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee, told a conference call of reporters on Wednesday. “At this point, the productivity enables companies to keep up with high levels of orders and business activity without adding people.”
May ISM Services PMI up to 54.5 vs. 53.8 est. & 53.6 prior; new orders up to 57.3 vs. 53.5 prior; employment down to 47.9 vs. 48.0 prior; prices paid up to 71.3 vs. 70.7 prior pic.twitter.com/IM2TX5pCvE
— Liz Ann Sonders (@LizAnnSonders) June 3, 2026
Strong demand and the confidence among companies that it will continue were clear in the data. The Business Activity (57.7 percent) and New Orders (57.3 percent) indexes indicated robust expansion, though Miller said some of that buying activity could be a factor of seasonality.
Still, sentiment reflected in the Inventories Index spoke loud and clear: The reading of 62.5 percent, an increase of 9.4 percentage points, tied May 2010 as the highest since Services PMI® data collection began in 1997. Panic buying was not evident in comments, and the Inventory Sentiment Index (55.2 percent) was up just 0.1 percentage point.
“The commentary didn’t call out buying ahead like (in April),” Miller said. “But the cost of inventory is going up. There might have been some continuing to buy ahead due to (shipping) fuel costs, but considering there was a decrease in the Imports Index (51.1 percent), that suggests a dual motivation (based on demand confidence).”
However, staffing levels aren’t following yet. The Employment Index reading of 47.9 percent was a slight decrease compared to April and a third straight month of contraction. While inventory levels suggest companies’ business activity confidence, Miller added that the possible seasonality dynamics in May have them holding off on hiring.
“Panelists commented frequently that their companies had instituted hiring freezes or were not filling vacated positions,” he said.
The X-factor is AI: While panelists have not indicated companies are laying off employees due to the technology, such industries as Finance & Insurance and Information have significantly invested in AI, and data center projects will boost the Construction industry. The services sector will stay tuned on this trend.
ISM services. Sounds inflationary. pic.twitter.com/iCuaWfmAVO
— Tim Duy (@TimDuy) June 3, 2026
As usual, the Prices Index was closely watched, and the reading of 71.3 percent is a gain of 0.6 percentage point compared to April and the highest since August 2022 (72.6 percent). Fuel and metals continued to be cost drivers, and petroleum products (as expected) entered the list of commodities up in price in May.
Thirty-one commodities were listed as up in price. The number down in price? Zero, for a third straight month. And a new challenge could be on the way — a suite of Trump administration-proposed tariffs of at least 10 percent on 60 trading partners.
Miller said, however, that potential impact should be limited because most companies have figured out a tariffs game plan. The Supplier Deliveries Index reading of 55.2 percent, a decrease of 1.6 percentage points, indicated slightly better delivery performance and suggests that supply chains are dealing with headaches like tariffs and Middle East-related bottlenecks.
“At least within the services sector, those challenges are being worked through,” he said.
The ISM® PMI® Reports roundup:
Bloomberg: Treasuries Eye Biggest Loss in Two Weeks After Jobs Gauge. “Treasuries recouped some of their losses after Wednesday’s other major economic release — the Institute for Supply Management’s service-sector gauge for May — included measures of prices paid by companies and employment in the sector that were lower than estimated. The (Services PMI®) topped the median estimate.”
CNBC: U.S Factory Orders Rise 4.8% in April. “On the ISM (numbers), these are all fresh … 54.5 percent is much stronger than expected,” analyst Rick Santelli said. He added, “If we look at (the Prices Index), we want this one to go down a bit, and indeed, it was less than expectations that were over 72 percent; this one comes in at 71.3 percent. The problem is that it’s sequentially higher than 70.7 percent in the rear-view mirror.”
Mace News: Services Sector Activity Picks Up in May but Faces Mideast Conflict Impact of Higher Costs of Fuels, Other Oil Products; Employment Remains Weak. “Asked about the impact of the combination of weak employment and rising inflation on the Federal Reserve’s policymaking amid market expectations that some central banks will have raise interest rates, Miller replied, ‘I was encouraged that we didn’t see a bigger jump in prices. However, the direct answer to your question is that I can’t see any room to increase interest rates in the near term.’ ”
MarketWatch: Iran Conflict Hasn’t Slowed The Economy, But Rising Inflation Coaxes Business To Freeze Hiring. “(S)enior executives also warned that rising prices and sporadic supplies shortages were hampering business. … The huge services side of the economy is the best barometer of growth. While it shows the economy is still expanding at an above-average speed, the pressure from the ongoing conflict with Iran is mounting.”
Reuters: U.S. Service Sector Growth Picks Up in May; Businesses Face Higher Prices for Inputs. “The survey's measure of prices paid by businesses for inputs increased to 71.3 percent from 70.7 percent in the prior month, an indication that the oil price shock would continue to spill over to the services sector. Inflation increased at its fastest pace in three years in April, the government reported last week.”
Respondents to the ISM Services survey in May reported several concerns around pricing, along with some mentions of supply constraints pic.twitter.com/xymodP3iuh
— Kevin Gordon (@KevRGordon) June 3, 2026
The Wall Street Journal: U.S. Services-Sector Activity Continued to Expand in May. “Economists polled by The Wall Street Journal expected a reading of 53.9. The New Orders Index continued to expand last month. Meanwhile, the Supplier Deliveries index fell (compared to) April. That was the 18th consecutive month that the index has been in expansion territory, which indicates slower supplier delivery performance.”
In case you missed Monday’s ISM® PMI® Reports Roundup on the release of the May ISM® Manufacturing PMI® Report, you can read it here. Also, the ISM® Supply Chain Planning Forecast for the manufacturing and services sectors will be released on June 17.
For the most up-to-date content on the reports under the ISM® PMI® Reports umbrella, use #ISMPMI on X, formerly known as Twitter.
(Photo credit: Getty Images/Zamrznutitonovi)