While supply chain concerns, including those related to trucker shortages and fluctuations in commodity prices (partially due to tariffs in some cases), remain an issue, purchasing managers in the non-manufacturing sector of the economy reported stronger overall activity in May. The level of activity has increased with an acceleration in new orders, and increase in order backlogs. Price pressures continue at this point in the cycle with prices up for the 27th straight month. 14 of 15 sectors reported growth as only IT reported a decline in overall business activity.
The ISM Non-Manufacturing Index
ROSE by 1.8 points in May to 58.6%, compared with market expectations for a small increase to 58.0%.
The May reading was slightly higher than its average level over the past 12 months. The current level of the index indicates that the economy is growing moderately.
Quotes from the Survey:
- New Orders rose by 0.5 points to 60.5%.
- Order Backlogs increased sharply and Inventories increased moderately.
- Employment grew by 0.5 points to 54.1% , indicating that upcoming employment report will likely be higher than last month's print.
- Prices increased by 2.5 points to 64.3%.
- “Since the last report, our foil lid supplier stated that the tariff on aluminum has caused supply interruptions and higher costs. A price increase was instituted by the supplier.” (Agriculture, Forestry, Fishing & Hunting)
- “Material prices have been difficult to predict this year, and suppliers have struggled to hold prices for any extended period on quotes, specifically on lumber and lumber-related products. The instability has proven frustrating, but a larger problem is that we are starting to see longer lead times in many of the same areas that could start impacting timelines if they continue to get worse as we get into the main building season.” (Construction)
- “After a challenging 2017 that ended strong, 2018 is off to a good start. Volume from existing clients as well as new sales are up, although the growth is marginal. May is showing a continuation of the monthly growth when measured over [the] previous year, leading to optimism for the rest of 2018.” (Management of Companies & Support Services)
- “The trade discussions with NAFTA, Korea and the European Union will have critical impacts on our spend relating to steel products. Also, the potential of the U.S. pulling out of the Iran nuclear deal could push crude prices higher.” (Mining)
- “Business is starting to increase. We have spent two years reducing our inventories to a level to support the current business climate. Now the uptick is faster than anticipated and supply is out of alignment with demand, which is causing many stockouts and shortages, and the need to expedite inventory. In shipping, we still [are] experiencing a shortage of domestic trucking resources (especially flat beds) and international shortage of flat racks. We [are] working to minimize the impact of the tariff on steel and aluminum.” (Other Services)
- “Oil price stabilization in the (US) $60 to $70 per barrel [is] having a positive impact on hiring, both contract labor and direct employees, in the oil and gas industry and supporting industries.” (Professional, Scientific & Technical Services)
- “Shortage of qualified labor and services personnel.” (Public Administration)
- “Sales over the last month have been very strong. We are still struggling with the fluctuation in commodity costs and the weakening U.S. dollar.” (Retail Trade)
- “The supply chain is shuttering because of a lack of drivers and equipment causing delays in multiple modes of transportation. The activity to adjust to this is not causing stockouts yet, and we are increasing inventory levels in anticipation of worsening conditions.” (Wholesale Trade)