Another Strong ISM Services Report With Price Increases Escalating

The index of prices approaching the all-time high set in 2005.
Publish date:
ISM Services 2021-05

Key ISM Services Points

  • All 18 services industries reported growth in May. 
  • The composite index indicated growth for the 12th consecutive month after a two-month contraction in April and May 2020. 
  • The rate of expansion is very strong, as businesses have reopened and production capacity has increased. 
  • Some capacity constraints, material shortages, weather-related delays, and challenges in logistics and employment resources continue.

Prices Escalate

  • The Prices Index registered 80.6 percent, which is 3.8 percentage points higher than the April reading of 76.8 percent, indicating that prices increased in May, and at a faster rate. 
  • The last time the Prices Index was this elevated was when it registered 77.4 percent in July 2008; the all-time high is 83.5 percent in September 2005.

What Respondents Say

  • “Stimulus money, increased vaccinations, increased dining capacity and pent-up demand are driving a fast recovery for dine-in restaurants — and all consumer segments, it seems — resulting in labor shortages and supply chain gaps.” [Accommodation & Food Services]
  • “Container delays are impacting our supply chain in a significant way. Delays at the Port of Montreal and West Coast ports have impacted our ability to provide products in growing season. Truck availability has generally been tighter than normal. We’ve seen a real impact in the southeastern market.” [Agriculture, Forestry, Fishing & Hunting]
  • “Very concerned about the rapid and continuing price escalations for any products with copper, steel, and polyvinyl chloride (PVC). Production issues and lead-time extensions are not improving.” [Retail Trade]
  • “Business is doing good, exceeding sales target, but we have challenging issues with (1) increases in raw-materials costs and freight rates, (2) huge freight delays from overseas and (3) continued U.S. port delays. The (COVID-19 surges) in India and Taiwan are also causing delays on product availability/shipments.” [Wholesale Trade]
  • “As the vaccination rate continues to climb and the coronavirus (COVID-19) infection rate continues to plummet, business conditions are steadily improving: Strong revenue performance is returning, and outlooks are improving. Some supply categories remain constrained (nitrile gloves, sterile wrap and the like), yet are somewhat manageable, limiting the impact to daily operations.” [Health Care & Social Assistance]
  • “(We are) seeing cost increases and long lead times with steel and steel containers. Worker shortages, temp labor and the like.” [Management of Companies & Support Services]

Diffusion Indexes

It's important to note that the ISM measures are diffusion indexes that measure direction, not size. 

For example, a price increase of 10 cents counts as much as a price increase of $10. Nor is there any weighting by the percent of the increase (or decrease). 

Nonetheless, the percentage of services hiking prices (80.6%) is approaching the record high near the peak of the housing bubble.

Also note Manufacturing ISM Up 12th Straight Month But Employment Slows to a Crawl

Meanwhile, The key Missing Ingredient in Biden's $6 Trillion Budget is Honesty.

Signs point to an over-stimulated economy that could fail at any time.


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