The economy is on fire, ISM shows, but labor and supply shortages are a big drag

The numbers: The large service side of the U.S. economy expanded rapidly in May as Americans rushed to do all the things they couldn’t do during the pandemic, but widespread labor and supply shortages kept companies from growing even faster.

A survey of businesses such as retailers, restaurants and hotels climbed to 64% last month from 62.7% in April, the Institute for Supply Management said Thursday.

Although it’s the highest level on record, service-oriented companies still aren’t totally back to normal. The survey asks executives if business conditions are better or worse, but it doesn’t tell us how much so. 

Economists surveyed by Dow Jones and The Wall Street Journal had forecast the index would total 62.5%. Any number above 50% signals expansion and readings above 60% are exceptional. 

“The rate of expansion is very strong, as businesses have reopened and production capacity has increased” said Anthony Nieves, chairman of the survey.

Big picture: Americans are eager to go away for vacation, eat dinner out, visit a museum, take in a ball game or do many of the things that were largely off limits in the past year. And they have some extra cash courtesy of the federal government.