ISM non-manufacturing weakens in May as headwinds still linger

U.S. ISM non-manufacturing index moved opposite to its manufacturing counterpart and printed slightly lower than expected. While the index still remains well in expansionary territory, it now sits 0.4% below last year's level. The weak undertone in the business activity and new-orders sub-components underscores the fact lingering headwinds are still weighing on overall economic activity. 

To some extent, the big move in the prices paid sub-component can likely be tied to remnants of port disruptions still causing inventory shortages in the wholesale trade sector. These should also abate over the coming months. While the pullback in the employment sub-component was disappointing, the blow was somewhat softened by the consensus-meeting ADP report, which came in at 201k. 

"We expect headwinds to subside over the next few months, helping to lift economic growth over the second half of this year. Moreover, given that the timing of the recent improvement in weekly jobless claims overlaps with the Bureau of Labor Statistics survey period for May payrolls, this suggests another +200k reading in Friday's non-farm employment report." says TD Economics