Service Sector Slows to a Crawl in May Amid Hiring Contraction

Source: Economics Group of Wells Fargo Bank, N.A. Summary The third decline in four months for the ISM services index points to a trend decline in service sector activity, which slowed to a crawl of just 50.3 in May. In direct contradiction to Friday’s jobs report, employment was in contraction with seven industries reporting a decrease in payrolls. Slowing Toward Stall Speed The ISM services component fell for the third time in four months to come within a whisker of the 50.0 line of demarcation that separates expansion and contraction (chart). Since the re-opening of the economy in June 2020 after the COVID shutdowns, the ISM services index was below 50 only once in December 2022. The business activity index continued its trend decline with May’s 51.5 reading marking the fourth consecutive monthly decline (chart). Every non-inventory sub-component was lower in May reflecting a clear shift into a lower gear. To the extent that there was good news in today’s report, the fact that new orders are still in expansion is encouraging. Although the fact that this measure fell to 52.9 from 56.1 in April, shows a clear slowdown. Worse, the prospects for orders are not at all good. Order backlogs plunged 8.8 points to hit a low of 40.9, a reading not seen since the financial crisis in 2009. READ FULL ARTICLE >>