The Purchasing Managers’ Index (ISM Services PMI) is a widely followed economic indicator that provides insight into the health and direction of the US services sector.
Here are the key details about the Services Purchasing Managers’ Index (ISM) :
- The Services Purchasing Managers’ Index (ISM) is a composite index that tracks the monthly change in US services sector activity levels.
- It is based on a survey of procurement and supply executives from more than 400 non-manufacturing companies in various industries.
Components and calculation:
- The Purchasing Managers’ Index (PMI) is calculated based on five main components: business, new orders, hiring, supplier delivery, and inventories.
- Each component is given a spread index score on a scale of 0 to 100, and the overall PMI is a weighted average of the scores of these components.
explanation:
- PMI reading above 50 indicates expansion in services sector, while reading below 50 indicates contraction.
- The higher the PMI is above 50 or below, the stronger the rate of expansion or contraction, respectively..
Indication:
- The Services Purchasing Managers’ Index (ISM) is a key indicator of the overall health of the US economy, with the services sector accounting for a large part of economic activity..
Market Impact:
- The release of services PMI data can have a significant impact on financial markets, as it helps shape expectations on the Fed’s monetary policy decisions and economic outlook..
- Surprises in PMI data, both upside and down, can lead to volatility in stocks, bonds and the US dollar.
Overall, the Services Purchasing Managers’ Index (ISM) is an influential economic indicator that is closely watched and provides valuable insights into the performance and trajectory of the U.S. services sector..
Services PMI contracted in April after 15 months of growth
In April, the services PMI came in at 49.4 percent, down two percentage points. From March’s reading of 51.4 percent, the composite index indicated a contraction in April after 15 consecutive months of growth since a reading of 49 percent in December 2022, the first contraction since May 2020 (45.4 percent). This is 6.5 percentage points lower than the 57.4 per cent recorded in March, and the new orders index expanded in April for the sixteenth consecutive month after contracting in December 2022 for the first time since May 2020, which is 2.2 percentage points lower than the March reading of 54.4 per cent, and the employment index contracted for the fourth time in five months with a reading of 45.9 per cent, down 2.6 percentage points compared to 48.5 per cent recorded in March.
“The Supplier Delivery Index was 48.5 percent, 3.1 percentage points higher than the 45.4 percent recorded in March. The index contracted for the third consecutive month – suggesting supplier delivery performance was faster – after one month of expansion (or “slower”) in January (supplier delivery is the only inverted ISM® Report On Business® indicator; a reading of more than 50 percent indicates a slowdown in deliveries, which is typical as the economy improves and customer demand increases.)
“The price index came in at 59.2 percent in April, up 5.8 percentage points from March’s reading of 53.4 percent. The inventory index grew in April after four previous months of contraction, recording 53.7 percent, an increase of 8.1 percentage points from the March reading, and the inventory confidence index (62.9 percent, up 7.2 percentage points from March’s reading of 55.7 percent) expanded for the twelfth consecutive month.
Services PMI rises in May to 53.8%
In May, the services PMI came in at 53.8 percent, up 4.4 percentage points from April’s reading of 49.4 percent, the contraction in April ended a 15-month streak of services sector growth after the composite index reading of 49 percent in December 2022; the last contraction before that was in May 2020 (45.4 percent). The index came in at 61.2% in May, 10.3 percentage points higher than the 50.9% recorded in April. The new orders index expanded in May for the seventeenth consecutive month after contracting in December 2022 for the first time since May 2020 per cent, 1.9 percentage points higher than April’s reading of 52.2 per cent, and the employment index contracted for the fifth time in six months, albeit at a slower rate in May at a reading of 47.1 per cent, an increase of 1.2 percentage points compared to 45.9 per cent. percent recorded in April.
“The Supplier Delivery Index was 52.7 per cent, 4.2 percentage points higher than 48.5 per cent recorded in April. The index entered expansion territory — suggesting a slowdown in supplier delivery performance — in May for the first time since January. (Supplier delivery is an indicator ISM only) ® Inverted Business® Report Indicator; A reading of more than 50 percent indicates a slowdown in deliveries, which is typical as the economy improves and customer demand increases.)
“The price index came in at 58.1 per cent in May, down 1.1 percentage point from April’s reading of 59.2 per cent. The inventory index grew in May for the second consecutive month after four previous months of contraction, recording 52.1 percent, a decrease of 1.6 percent.” Point from April’s figure of 53.7 percent, the inventory confidence index (57.7 percent, down 5.2 percentage points from April’s reading of 62.9 percent) expanded for the thirteenth consecutive month in March, recording 50.8 percent, down 0.3 percentage points compared to April’s reading of 51.1 percent.
