Assuming that the ISM published the correct figures this time, the rise in the non-manufacturing index, to 56.3 in May from 55.2 in April (consensus 55.5), suggests that the economy had a decent amount of momentum midway through the second quarter.
This sits comfortably with other evidence that retail sales growth has accelerated and with the increases in the various regional surveys on activity in the services sector. The breakdown shows that the new orders, business activity and employment indices all edged up. The latter increased to 52.4, from 51.3 in April, and offsets some of the weaker news on employment from the ISM manufacturing index and ADP survey. As such, we are sticking with our forecast that payroll employment rose by around 230,000 in May (data due Friday).
A weighted average of the two ISM activity indices is now consistent with a rebound in annualised GDP growth to around +3.0% in the second quarter from -1.0% in the first. We still think it could be closer to 3.5%.