The US services sector expanded at a faster pace in May, with the ISM non-manufacturing PMI rising to 54.5 from 53.6 in April, surpassing economists' forecasts of 53.8 [1, 2]. This growth was largely driven by companies pre-emptively placing orders and rebuilding inventories amid concerns of supply disruptions and rising prices caused by the ongoing war with Iran [1, 2].
The services new orders index climbed sharply to 57.3 in May from 53.5 the previous month, indicating heightened demand and frontloading of purchases [1, 2]. Meanwhile, the services inventories index jumped to 62.5 from 53.1, reversing a four-quarter decline as businesses restocked to mitigate expected shortages [1, 2].
Input costs continued to rise, with the prices paid index for businesses increasing to 71.3 from 70.7, reflecting spillover effects from oil price shocks on the services sector [1, 2]. The ISM supplier deliveries index eased slightly to 55.2 from 56.8 in April but remained elevated, signaling slower deliveries due to strained supply chains caused by the conflict [1, 2].
The three-month US-Israel war with Iran has severely disrupted commodity shipping routes and pushed up prices for energy, aluminum, and fertilizers, adding further pressure on businesses across sectors [1, 2].
Employment data in the services sector showed subdued hiring, with the ISM noting an increase in worker attrition. However, broader US labor market figures reported back-to-back months with non-farm payroll gains above 100,000 jobs [1].
Looking ahead, the US Federal Reserve is expected to maintain its benchmark interest rate in the 3.50% to 3.75% range into next year as it monitors inflation and economic conditions impacted by global geopolitical developments [1, 2]. The Fed’s new chairman, Washington, is scheduled to hold the first rate decision meeting on June 16-17 [2].
