U.S. Services Sector Expands at Faster Pace in May, Prices Paid Index Hits 71.3
By TopHolding Editorial · Wednesday, June 3, 2026 at 12:00 AM
The ISM Non-Manufacturing Index rose to 54.5 in May, indicating a pickup in the services sector crucial to two-thirds of the U.S. economy. This expansion, the 23rd consecutive month, was driven by increases in business activity and new orders, despite surging price growth not seen since 2022.
The U.S. services sector demonstrated stronger growth in May, with the ISM Non-Manufacturing Index increasing to 54.5. This figure surpassed the consensus expectation of 53.8 and signals expansion for the 23rd consecutive month in the sector responsible for roughly two-thirds of the nation's economic activity. The pickup was primarily attributed to notable increases in both business activity and new orders, even as service companies experienced their most rapid pace of price growth since 2022.
Looking at the underlying components, the business activity index rose to 57.7 from 55.9 in April, and the new orders index climbed to 57.3 from 53.5. Both these key measures have consistently shown expansion over the past twelve months. The overall growth in May was broad-based, with 17 out of 18 major service industries reporting expansion; only the Real Estate sector indicated contraction. Despite this robust growth, global economic uncertainties temper the outlook.
Several survey comments highlighted persistent inflationary pressures, stemming from ongoing supply chain disruptions and elevated fuel costs, which are permeating various product categories. This environment has prompted many service companies to defer internal projects in anticipation of greater economic stability. Furthermore, initial hiring increases observed at the start of the year have stalled, as evidenced by the employment index, which has fallen back into contraction at 47.9 in May after opening the year in expansion territory.
Of particular note, the prices paid index registered the highest reading among all components, rising to 71.3 in May from 70.7 in April. This marks the highest level for this index since August 2022. While elevated, this figure remains below the highs observed during the most severe COVID-19 supply-chain disruptions, when the index reached into the low 80s. The potential for the ongoing conflict in Iran to impact short-term input prices is being closely watched, as is the M2 money supply, which has exhibited slow growth over the past three years, for indications of long-term inflationary trends. In other economic news, sales of cars and light trucks in May reached an annual rate of 16.1 million units, representing a 1.0% increase from April and a 2.7% rise year-over-year.
Key terms:
1. **ISM Non-Manufacturing Index**: An economic indicator based on a monthly survey of purchasing and supply executives across 18 non-manufacturing industries. A reading above 50 generally indicates expansion in the services sector, while a reading below 50 suggests contraction.
2. **Business Activity Index**: A sub-component of the ISM Non-Manufacturing Index that measures the change in the level of business activity in the services sector from the previous month.
3. **New Orders Index**: A sub-component of the ISM Non-Manufacturing Index that tracks changes in the volume of new orders received by service businesses, reflecting future demand.
4. **Prices Paid Index**: A sub-component of the ISM Non-Manufacturing Index that reflects the prices paid by service-sector businesses for materials and services, serving as an indicator of inflationary pressures.