The ISM Non-Manufacturing Index Fell to 52.9 in May


Implications: Service sector activity continued to grow in May, as fourteen of eighteen industries surveyed by the ISM reported expansion, while just four - including mining and educational services - reported contraction. Yes, the pace of growth slowed from April, but overall activity expanded in the service sector for a 76th consecutive month, and continued strength in both new orders and business activity show positive signs for the months ahead. And while both the new orders and business activities indexes declined in May, both remain comfortably above 50, signaling continued expansion. Taken together, growth prospects remain positive with no sign of a looming recession. In line with this morning's disappointing jobs report, the employment index fell to 49.7 in May, despite eleven of eighteen industries reporting rising employment (six reported reductions). Given the sustained activity in new orders and business activity, we expect the employment index to return to levels above 50 in the months ahead. On the inflation front, the prices paid index rose for a second consecutive month, with rising prices for fuels and paper products more than offsetting declines in prices for beef, eggs, and metals. Rising energy prices have pushed the major inflation indicators higher in recent months, led by the recovery in oil prices. Even if oil prices level out rather than continue the march higher, inflation will approach the Fed's 2% inflation target faster than many market participants are expecting. As a whole, today's ISM report shows a continuation of Plow Horse growth. It's modest growth, but growth nonetheless.

Click here for a PDF version 

Posted on Friday, June 3, 2016 @ 11:30 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.