The U.S. services sector expanded at a faster pace in May as the non-manufacturing index rose to 58.6 from 56.8 in April, on a seasonally adjusted basis, the Institute for Supply Management reported Tuesday.

An index reading below 50 signals a slowing economy, while a level above 50 suggests expansion.

Economists polled by IFR Markets had expected a 57.5 level.

The prices paid index rose to 64.3 from 61.8, the 27th consecutive month prices rose, the ISM said. The employment index gained to 54.1 from 53.6.

The business activity/production index grew to 61.3 from 59.1, the new orders index was at 60.5, up from 60.0; backlog of orders soared to 60.5 from 52.0; new export orders decreased to 57.5 from 61.5; inventories rose to 57.5 from 57.0; inventory sentiment grew to 61.0 from 60.0; the supplier deliveries index increased to 58.5 from 54.5; and imports dipped to 54.0 from 54.5.

Members' general comments on business in the month included:

  • “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)

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