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Service Sector Activity Rises on Consumer Demand
Gauges of New Orders and Business Activity Increased
Key Takeaways:
- U.S. service-sector activity accelerated in May as the ISM index rose to 54.5, indicating expansion and stronger business activity and new orders.
- Growth comes as input costs surged, with ISM’s prices-paid gauge hitting 71.3, driven by Iran war-related energy, transport and supply chain pressures.
- Hiring remains weak as employment shrank for a third straight month, while firms hold staffing flat and await the June 5 government jobs report.
U.S. service-sector activity picked up in May, even as businesses face the fastest growth in input costs in nearly four years.
The Institute for Supply Management’s services index rose to a three-month high of 54.5, according to data released June 3. Readings above 50 indicate expansion.
Gauges of new orders and business activity both increased, signaling resilient consumer demand.
Nearly every service industry reported growth in the month, including wholesale trade, entertainment and recreation, and construction. The only industry reporting a contraction was real estate and leasing.
The costs of services and materials for firms, meanwhile, continued climbing. The Iran war has sparked a new wave of inflation, driving up energy and transportation costs and disrupting supply chains around the world.
ISM’s prices-paid gauge rose to 71.3 last month, the highest since August 2022. Businesses may choose to eventually pass those cost increases onto shoppers, who are already seeing higher prices at the gasoline pump and the grocery store.
.@ISM Services PMI® Report: Strong growth in business activity and new orders continued, but #employment has yet to follow. Meanwhile, prices remained elevated and inventory levels tied an all-time high as the #ISMPMI improved to 54.5% in May. https://t.co/j7zQHWLFxz #economy — Institute for Supply Management (@ism) June 3, 2026
Some companies could also be seeking to stockpile materials if they’re anxious about the availability of products or costs climbing further. The group’s inventory index swelled in May, matching the highest on record.
With rising prices pressuring firms’ bottom lines and Americans’ incomes, there’s a risk of intensifying wariness around hiring. The group’s gauge of employment edged lower and indicated shrinking headcount at service providers for a third straight month.
“Respondents commented frequently that their companies had instituted hiring freezes or were not backfilling vacated positions, however, most industries reported that they were holding flat in employment month over month,” Steve Miller, chair of the ISM Services Business Survey Committee, said in a statement.
The government’s May jobs report will be released June 5.
