Services Sector Grows, But at a Slower Pace

By SBE Council at 5 June, 2023, 7:11 pm

by Raymond J. Keating –

According to the Institute for Supply Management’s Services PMI Index, the services sector in the U.S. grew in May for the fifth consecutive month. However, the Services PMI of 50.3 percent in May was 1.6 percentage points lower than April’s reading of 51.9 percent.

The contraction in December of last year was the only month in which the services sector did not grow over the past 36 months. (The following chart, courtesy of the Institute for Supply Management, shows the services sector read for the past 12 months.) A reading above 50 percent indicates growth.

Services sector growth stands in contrast to seven straight months of decline for manufacturing, according to the ISM Manufacturing PMI, as SBE Council noted. However, the services slowdown experienced in May, and really over the past three months compared to the first two months of this year, warrant watching.

As for the 18 sectors noted in the report, 11 grew in May, while seven experienced contraction.

Anthony Nieves, Chair of the Institute for Supply Management Services Business Survey Committee, noted, “The majority of respondents indicate that business conditions are currently stable; however, there are concerns relative to the slowing economy.”

Indeed, it is worth noting that in looking at the state of the economy during periods of under-performance, indicators often point in different directions. Concerns about the state of the economy persist, even though the media is filled with all-is-well reports thanks to the headline from last week’s May employment report. But SBE Council noted that there was much more to that report when digging below the headline. For good measure, jobs tend to be a lagging indicator on the economy.

We all hope that another recession can be avoided, but to state that there’s nothing to worry about is more wishful thinking than economic realism.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.