The service sector grew more slowly in May as production and prices cooled, according to a report from the Institute for Supply Management on Friday.
Demand, however, remained strong as consumers continued to shift spending from goods to services, especially as the summer approaches. We expect the service sector to continue growing, although at a slower pace as the economy moderates.
The service index dropped 1.2 percentage points to 55.9, the lowest level since February. Still, it marked the twenty-fourth month of expansion in a row; anything above 50.1 indicates growth over time.
Future demand increased as the new order sub-index rose 3 percentage points to 57.6. Inventories, on the other hand, slowed down on the month as supply chain bottlenecks remained a problem.
Employment for the sector expanded again in May after contracting in April. But the pace of employment growth was extremely low at 50.2 because of labor shortages.
One respondent from the professional, scientific and technical services industry said, “Demand for all labor types remains strong, as open positions continue to exceed candidates to fill those positions. Light industrial, heavy industrial and information technology labor roles are particularly difficult to fill. Companies are having to pay more and offer incentives to attract talent. Resignations continue at a record pace across all age groups, and baby boomer retirements continue to increase.”
The same also happened across other industries. Labor shortages and higher input costs gave companies no choice but to keep prices high to protect profit margins. The prices index grew slightly lower on the month, though it remained elevated as inflation continued to be sticky.