The Econoday service sector activity index (ESSAI)* for May is down to minus 3.0 after minus 2.1 in April and minus 4.1 in March. Five of six underlying regional surveys for the service sector show an increase in business activity and one is down. However, half of the surveys show conditions remain weak and half reflect very modest expansion. The service sector may be feeling the pinch as households and businesses shift spending to non-discretionary items due to higher energy costs.
Input prices may not be rising as quickly for the service sector as for manufacturing but the pass through from the producer level is far from over. The Econoday service sector prices paid index (ESSPPI)# dips to 39.8 in May from 40.5 in April but is still well above the 35.2 in March. Input prices may not be rising but neither are these coming down significantly and the full impact has yet to be felt.
The Econoday factory sector employment index (ESSEI)## is up to 0.3 in May after minus 1.4 in April and minus 0.3 in March. This is a mild indication that hiring in the service sector will pick up in May. Likely there is a seasonal component as the summer vacation period approaches.
The ESSAI has good correlations** with the major national indexes for activity in the service sector.
The S&P services purchasing managers index had a flash reading of 50.9 for May, essentially the same as the final 51.0 in April and just above 49.8 in March. The index generally sees only minor revisions from the flash to the final report. The S&P index is taken later than the regional surveys and is likely the more accurate perception of current conditions for the service sector.
The final S&P services purchasing managers index for May is set for release at 9:45 ET on Wednesday, June 3.
The ISM services index was lower at 53.6 in April from 54.0 in March and 56.1 in February. Conditions in the service sector had been improving prior to the start of the war on Iran on February 28. Continued uncertainty is keeping activity in check.
The ISM services index for May is set for release at 10:00 ET on Wednesday, June 3.
*The ESSAI is an average of seasonally adjusted indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The districts correspond with about 48 percent of the US labor force. An index above 0 indicates expanding activity and below 0 indicates contracting activity.
**S&P PMI for services index correlation 0.754, ISM services index 0.747.
#The ESSPI is an average of unadjusted indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The ESSPI has a correlation of 0.840 with the ISM services prices paid index.
##The ESSEI is an average of seasonally adjusted employment indexes from the Federal Reserve district bank surveys of the non-manufacturing sector. The index has a correlation of 0.754 with the ISM services index.
