Picture yourself standing outside a bustling restaurant—customers streaming in, waitstaff weaving between tables. This scene encapsulates the vitality of America's service economy. But what economic signals lie beneath this surface-level prosperity?
Introduction
The latest Non-Manufacturing ISM Report On Business reveals sustained expansion in May, with the sector's activity index climbing to 56.9, up 1.4 percentage points from April. As the non-manufacturing sector accounts for nearly 90% of US economic output, its performance offers critical insights into the health of service industries, construction, and other key segments of the world's largest economy.
Understanding the Non-Manufacturing Index (NMI)
Compiled by the Institute for Supply Management (ISM), the NMI serves as the foremost benchmark for non-manufacturing activity. Derived from surveys of purchasing and supply executives across 18 industries, the diffusion index ranges from 0 to 100, with readings above 50 indicating expansion.
May Performance Breakdown
The May reading marks 112 consecutive months of growth, though the figure sits 1.3 points below the 12-month average of 58.2. This suggests modest deceleration from 2018's robust pace. Key components showed:
- Business Activity: 56.9 (+1.7 points)
- New Orders: 58.6 (+0.5 points)
- Employment: 58.1 (+4.4 points)
- Supplier Deliveries: 49.5 (first sub-50 reading in 40 months)
- Prices: 55.4 (-0.3 points)
Sector Performance
Eleven industries reported growth, led by:
- Education Services (demographic tailwinds)
- Accommodation & Food Services (seasonal tourism boost)
- Construction (infrastructure spending)
- Transportation & Warehousing (e-commerce growth)
Three sectors contracted, including Agriculture and Information services.
Economic Implications
The report signals several macroeconomic trends:
- Labor Market Strength: The employment surge suggests continued job creation
- Inflation Moderation: Price pressures eased slightly but remain elevated
- Supply Chain Efficiency: Faster supplier deliveries indicate improving logistics
Expert Analysis
Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee, characterized the growth as "slow but steady," noting the sector's diversified nature makes it more resilient than manufacturing. He identified trade tensions and geopolitical risks as primary concerns, while highlighting strong consumer confidence and discretionary spending.
Outlook
The sector faces both opportunities (technological innovation, demographic growth) and challenges (trade disputes, labor shortages). Most analysts anticipate continued moderate expansion barring significant policy shocks.