U.S. Services Sector Expansion Continues in May 2026 Amid Rising Prices and Employment Challenges

Event summary

  • The ISM Services PMI® registered 54.5% in May 2026, up 0.9 percentage points from April, marking the 23rd consecutive month of expansion.
  • Business Activity Index increased to 57.7%, while the New Orders Index rose to 57.3%, both indicating strong demand.
  • Employment Index contracted for the third month in a row, registering 47.9%, reflecting hiring freezes and non-backfilling of vacated positions.
  • Prices Index reached 71.3%, the highest since August 2022, driven by rising costs of diesel, gasoline, and other petroleum-related products.
  • Inventories Index hit its highest level since May 2010, registering 62.5%, while Inventory Sentiment remained stable, suggesting confidence in business activity.

The big picture

The U.S. services sector continues to expand, but rising prices and employment challenges pose strategic risks. The sector's resilience is tested by inflationary pressures and geopolitical disruptions, particularly in the Persian Gulf, which are driving up costs for fuel and other essential commodities. The stability of the labor market and the ability to manage supply chain disruptions will be critical in sustaining this growth.

What we're watching

Labor Market Dynamics
How sustained employment contraction will impact service sector growth and operational efficiency.
Inflationary Pressures
Whether rising commodity prices will further strain profit margins and consumer spending.
Supply Chain Stability
The pace at which supply chain disruptions and delivery delays will normalize amid geopolitical tensions.