ISM Services Index Rebound In May: 5 Top-Ranked Picks
Zacks Investment Research | Jun 06, 2019 06:36AM ET
On Jun 5, the Institute for Supply Management (ISM) announced fresh figures for its service index for the month of May. Notably, the reading exceeded expectations and returned to the growth trajectory after two consecutive months of decline. The ISM Services index clearly reflects that the U.S. economy has sustained its momentum going into the second quarter. Gains were broad-based and occurred in 16 out of total 17 industries.
Service-oriented businesses remained strong in May, improving for 112 consecutive months. At this stage, it will be prudent to invest in stocks from the services sector with a favorable Zacks Rank and strong growth potential.
Strong May Readings
The ISM reported that its service index came in at 56.9% for the month of May, surpassing the consensus estimate of 55% and previous month’s reading of 55.5%. May’s reading is the second highest so far in this year. Notably, any reading above 50% indicates expansion of the services sector and a reading of above 55% reflects outstanding performance by the services sector.
A strong bunch of 16 industries expanded in May. The sole exception was Agriculture, Forestry, Fishing & Hunting. The Business Activity Index came in at 61.2%, and has now increased for 118 consecutive months. Additionally, the New Orders Index stood at 58.6% while the Employment Index came in at 58.1%.
ISM chair Anthony Nieves said, “Respondents are mostly optimistic about overall business conditions, but concerns remain about tariffs and employment resources.”
Healthy Fundamentals of the U.S. Economy
Fundamentals of the U.S. economy remain strong. First-quarter 2019 GDP growth rate was 3.1% despite 35-day long partial government shutdown and extremely cool winter. The Bureau of Economic Analysis reported that personal consumption grew 1.2% in the first quarter. A high rate of consumer spending confirms that the economy is in a strong footing to likely result in solid second-quarter growth.
For May 2019, the Conference Board's measure of consumer confidence index stands at 134.1 compared with 129.2 in April. May’s reading is near the 18-year high recorded in November 2018 and above the consensus estimate of 129.5. A robust job market, higher consumer spending, low inflation rate and a possible interest rate cut are likely to push up consumer confidence in the months to come.
More importantly, the Expectations Index, which is a measure of the consumers’ short-term (for next six months) outlook for income, business and labor market conditions, surged to 106.6 from 102.7. The Expectation Indexes currently stands close to the highest level in a decade.
Our Top Picks
Get The News You Want
Substantial expansion in the services sector is indicative of its continuing attractiveness as an investment option. This is why it makes good sense to add stocks from this sector to your portfolio. We have narrowed down our search to five such stocks each carrying a Zacks Rank #1 (Strong Buy). You can see Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.