TEMPE, Ariz. – Growth at U.S. non-manufacturing businesses accelerated in May at the fastest rate in more than a year, surprising analysts, according to a report today from the Institute for Supply Management.
The ISM’s Business Activity Index rose to 59.7 percent last month from 56.0 percent in April. (Since its launch in July 1997, the index has averaged 57.7 percent.) The increase surprised analysts surveyed by Bloomberg News, who had predicted the index would fall to 55.8 percent.
“Non-manufacturing business activity increased for the 50th consecutive month,” wrote Anthony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee and senior vice president for supply management at the Hilton Hotels Corp. “Business activity, new orders and employment increased at a faster rate in May than in April,” he added, while the ISM’s prices index increased to 66.4 percent.
The monthly Non-Manufacturing ISM Report on Business is based on a national survey of purchasing and supply executives. An index of 50 is neutral; higher numbers indicate growth.
“Twelve [of 14] non-manufacturing industries reported increased activity in May,” Nieves said in the report. Reporting increases – in order – were executives in mining; arts, entertainment and recreation; information; management of companies and support services; professional, scientific and technical services; utilities; finance and insurance; health care and social assistance; public administration; other services; retail trade; and construction. Decreases in business activity were reported in accommodation and food services; and wholesale trade – the same two industries that posted declines in April.
“Members’ comments in May are mostly positive,” Nieves said, despite rising fuel prices. Comments included “Business activity remains stable. Fuel prices remain outrageously high,” from a respondent in the professional, scientific and technical services sector; “Commercial business is solid … retail very competitive,” from finance and insurance; and “Housing market is still depressed,” from a respondent in the construction industry.
New orders increased more quickly than in April, while employment activity increased for the 34th straight month, the ISM said. Its New Orders Index for non-manufacturing industries increased 1.9 percentage points in May to 57.4 percent while the New Export Orders Index increased 10.5 percentage points to 66.0 percent. The ISM’s Employment Index increased 3.0 percentage points to 54.9, continuing to accelerate from March’s near-neutral level.
“It does look like growth is accelerating in the second quarter,” James O’Sullivan, senior economist at UBS Securities LLC in Stamford, Conn., told Bloomberg News. “It certainly argues against the Fed easing any time soon.”
The Institute for Supply Management, the publisher of Inside Supply Management magazine, produces monthly Reports on Business for the manufacturing and non-manufacturing sectors. Additional information is available at www.ism.ws.
