Activity in the US services sector expanded in May, according to survey data released Wednesday, beating expectations and continuing to show strong performance despite respondents citing rising cost pressures.
The Institute for Supply Management's (ISM) services index came in at 54.5 percent last month, up 0.9 percentage points from April's figure.
The reading beat expectations, with economists polled by Dow Jones Newswires and the Wall Street Journal expecting 53.9, and Briefing.com predicting 53.8.
Indexes for business activity and new orders also remained in expansion territory -- making gains from the month before -- but the employment index contracted for the third month in a row.
Input prices -- pushed by US President Donald Trump's tariffs and inflation fueled by his war on Iran -- remained high, with the prices index increasing by 0.6 percentage points from April's figure to 71.3 percent.
This was its highest reading since August 2022, when prices were on their way down after hitting a peak in the pandemic.
"The (prices) index has exceeded 60 percent for 18 straight months, increasing its 12-month average from 67.7 percent to 68 percent," said Steve Miller, chair of the ISM's Services Business Survey Committee.
"Diesel, gasoline, oil and related commodities were once again most frequently mentioned as up in price in May."
The US-Israel war on Iran has sent global energy prices surging, as Tehran's retaliatory action has virtually blocked the vital Strait of Hormuz through which roughly a fifth of global oil and gas supplies normally pass.
Activity was up across a broad swath of industries, with some of the largest gains reported in wholesale trade; arts, entertainment and recreation; construction; information; and agriculture.
The only industry that reported a contraction in May was real estate, rental and leasing.
"Patient volumes and activity remain high, employment is steady and supply chains are operating effectively," said one respondent in the health care industry, which has seen robust growth as the US population ages.
"There are some product lines on allocation as a direct result of the Middle East conflict; however, the current state is manageable."
For others, the effects of the war were more acute.
"We are seeing the dual effects of the administration's tariff policy dynamics and the conflict in the Persian Gulf affect our pricing," said one respondent in the accommodation and food services industry.
