The May U.S. Services Purchasing Managers' Index (PMI) from S&P Global inched down 0.3 points to 50.7, indicating slower expansion in the services sector. The latest reading was lower than the forecast of 50.9 and was among the weakest months of expansion in the past 2.5 years.
From the latest press release, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:
"While the US manufacturing economy is reporting a surge in demand as war-related supply and price worries drive precautionary stock building, it’s a different story in the service sector. Demand for services has been largely stalled over the past three months, losing the strength seen earlier in the year.
"The sluggish services economy is acting as drag on overall economic growth, which the PMI data signal to be running at a modest annualized pace of just above 1% so far in the second quarter.
"Hardest hit are the consumer-facing service sectors, where orders are now falling at the steepest pace since the pandemic in 2020, blamed on a combination of squeezed spending power from energy prices hikes and customers pushing back on higher prices being charged for services. However, business services are also seeing reduced order book growth compared to earlier in the year and financial services firms are coming under pressure from higher interest rates.
"Rising costs and cooling demand are meanwhile causing service companies to cut staff at the fastest rate seen since the early months of the pandemic.
"The increase in input cost inflation being signaled by the PMI points to a further rise in consumer price inflation in the coming months, but on the other hand the weakening of demand growth and downturn in the labor market being indicated could help allay concerns over any inflation spike becoming more entrenched."
Background on the S&P Global US Services PMI
The S&P Global US Services PMI™ measures the activity level of purchasing mangers in the services sector through a questionnaire of ~400 service sector companies. The sectors covered include consumer (excluding retail), transportation, information, communication, finance, insurance, real estate, and business services. The S&P Services PMI is a diffusion index, meaning that a reading above 50 indicates expansion in the sector compared to the previous month and a reading below 50 indicates contraction.
Here is a snapshot of the series since mid-2012.
