The Institute for Supply Management (ISM) reported that its Services PMI reached an all-time high of 64% in May 2021, marking the 12th consecutive month of growth in the services sector. For construction professionals, this reading carries significant implications across project pipelines, material procurement, labor availability, and cost management. Understanding the PMI data helps contractors align their business strategies with broader economic trends. For firms managing heavy equipment fleets alongside field operations, a Guide to Telematics a Unique Fleet Management offers insights on integrating data-driven decision-making into daily workflows.
The ISM Services PMI Reaches Historic Levels in May 2021
The ISM Services PMI registered 64% in May, up 1.3 percentage points from the April reading of 62.7%. This figure represents the highest level recorded since the index’s inception, surpassing previous peaks set during prior economic expansions. A reading above 50% indicates the services sector is generally expanding, while a level above 49.2% signals that the overall economy is growing. According to Anthony Nieves, chair of the ISM Services Business Survey Committee, the May PMI corresponds to a 5.2% increase in real gross domestic product on an annualized basis.
Pent-Up Demand Driving Unprecedented Activity
Nieves described the surge in demand as akin to a “jail break,” with consumers and businesses alike rushing to engage in services that were restricted during the COVID-19 pandemic. Survey respondents cited pent-up patient demand in health care, increased business activity from reopening, and greater access to vaccinations as primary drivers. The Business Activity Index registered 66.2% in May, an increase of 3.5 percentage points from the April reading of 62.7%, representing growth for the 12th consecutive month.
- Services PMI: 64% (all-time high, up 1.3 pp from April)
- Business Activity Index: 66.2% (up 3.5 pp from April)
- New Orders Index: 63.9% (up 1.0 pp from April)
- 18 service industries reported growth in May
Construction Sector Benefits from Broader Services Expansion
Construction was among the 18 industries reporting growth in May, alongside sectors such as real estate, transportation, wholesale trade, and finance and insurance. The broad-based nature of the expansion suggests that construction activity is being supported by multiple demand streams, including residential, commercial, and infrastructure projects. This diversified demand base provides some insulation against sector-specific downturns, though it also intensifies competition for shared resources such as labor and materials.
Breaking Down the ISM Index Components
The ISM Services report comprises several subindexes that together paint a detailed picture of operating conditions. For construction firms, each component carries distinct implications for project execution and financial planning.
| Index Component | May 2021 Reading | Change from April | Interpretation |
|---|---|---|---|
| Services PMI | 64.0% | +1.3 pp | All-time high; strong sector expansion |
| Business Activity | 66.2% | +3.5 pp | 12th month of growth; pent-up demand surge |
| New Orders | 63.9% | +1.0 pp | Sustained demand pipeline |
| Employment | 55.3% | -3.5 pp | 5th month of growth but slowing |
| Supplier Deliveries | 70.4% | +4.3 pp | Slower deliveries; supply chain strain |
| Prices | 80.6% | +3.8 pp | Near-record pricing pressure |
| Inventories | 51.5% | +2.4 pp | Modest growth after April contraction |
Employment Growth Continues but at a Slower Pace
The Employment Index registered 55.3% in May, down 3.5 percentage points from the April reading of 58.8%. While this marks the fifth consecutive month of employment growth after a contraction in December 2020, the deceleration signals ongoing challenges in filling positions. Survey respondents commented on intensifying competition for labor due to a lack of available talent pool, as well as difficulty finding qualified candidates for vacant positions.
Construction was one of the 10 industries reporting an increase in employment in May. The full list includes:
- Arts, entertainment and recreation
- Real estate, rental and leasing
- Retail trade
- Construction
- Finance and insurance
- Wholesale trade
- Mining
- Transportation and warehousing
- Public administration
- Utilities
Three industries reported a reduction in employment: accommodation and food services; agriculture, forestry, fishing and hunting; and educational services. The fact that construction ranked fourth among expanding employment sectors underscores the strong demand for building trades, but the broader labor pool constraints mean contractors must work harder to attract and retain qualified workers.
Supply Chain Pressures and Pricing Challenges
Perhaps the most challenging aspect of the May 2021 ISM report for construction firms was the continued deterioration in supply chain performance and the escalation of input prices. The Supplier Deliveries Index registered 70.4%, which is 4.3 percentage points higher than the 66.1% reported in April. A reading above 50% indicates slower deliveries. Construction was among the industries reporting the greatest slowdowns in deliveries, alongside accommodation and food services, wholesale trade, and transportation and warehousing.
Port Congestion and Logistics Bottlenecks
Survey respondents cited port congestion as a major factor delaying product deliveries. Manufacturers continued to report that capacity constraints, employment shortages, and supply-demand imbalances were impacting their ability to fulfill orders. These logistics bottlenecks directly affect construction projects, where timely delivery of materials is critical to maintaining schedules and avoiding costly downtime.
The 17 industries reporting slower deliveries in May included construction, signaling that project lead times for structural steel, lumber, mechanical systems, and finishing materials were all under pressure. For construction firms, effective supply chain coordination has become a competitive differentiator. Construction Site Logistics and Material Management Strategies for efficient supply chain coordination offers practical frameworks for managing these challenges on active job sites.
Pricing Pressure Near All-Time Highs
The Prices Index registered 80.6% in May, up 3.8 percentage points from April’s 76.8%, which was itself the highest reading since July 2008. The only time the Prices Index has been higher was in September 2005, when it hit 83.5%. All 18 services industries reported an increase in prices paid during May, underscoring the breadth of inflationary pressure across the economy.
Construction ranked third among industries reporting price increases, behind only real estate and wholesale trade. Commodities that rose in price included:
- Lumber and lumber products (5th consecutive month of increase)
- Steel, steel products, and carbon steel (9th consecutive month)
- Diesel and fuel (5th-6th consecutive month)
- Construction materials broadly (3rd consecutive month)
- Copper and copper wire
- PVC and PVC products (9th consecutive month)
- OSB and plywood (6th consecutive month)
- Electrical components and integrated circuits
- Corrugated boxes and packaging materials
For construction firms operating on fixed-price contracts or thin margins, these sustained price increases necessitate proactive risk management strategies. Construction Site Risk Management and Insurance Comprehensive Guide to hazard identification and risk transfer provides a structured approach to protecting project profitability against volatile input costs.
Strategic Implications for Construction Business Owners
The ISM May 2021 data presents construction executives with both opportunities and headwinds. The sustained expansion in new orders and business activity suggests a robust project pipeline, but supply chain disruptions, labor shortages, and pricing volatility demand careful operational and financial management.
Inventory Management Becomes a Strategic Priority
The Inventories Index grew to 51.5% in May after contracting at 49.1% in April. However, 38% of respondents indicated they do not have inventories or do not measure them. Construction was one of the few industries where firms reported that their inventories were too high, while most other sectors reported inventories were too low. This counterintuitive finding may reflect the nature of construction materials, where bespoke specifications, on-site storage limitations, and just-in-time delivery practices make inventory management fundamentally different from retail or manufacturing.
Nieves noted that while inventories improved for most industries, levels remain lower than what they should be to meet current demand reliably. Contractors may need to reassess their inventory policies, particularly for long-lead items such as structural steel, mechanical equipment, and specialty finishes. Construction Site Environmental Management and Erosion Control Best practices for site management highlight how integrated planning across all site operations, including material storage and handling, contributes to project success.
Preparing for the Inevitable Leveling Off
Nieves stated that while he expects the pace of record-breaking growth to continue through the end of the next quarter, it will eventually level off. “It has to, it always does,” he said. This expectation of normalization has practical implications for construction firms:
- Contract provisions: Include escalation clauses and material price adjustment mechanisms in new contracts to protect against continued cost volatility while maintaining flexibility for when prices stabilize.
- Workforce development: Invest in training and retention programs now, while revenue is strong, to build the skilled workforce needed for the next phase of the cycle. The competition for qualified workers will remain intense even as demand growth moderates.
- Supplier diversification: Reduce dependence on single-source suppliers by qualifying alternative vendors and material options. The port congestion and capacity constraints highlighted in the ISM report underscore the risk of concentrated supply chains.
- Technology adoption: Leverage project management software, telematics, and data analytics to improve estimating accuracy, track material deliveries, and optimize crew deployment. These investments pay dividends regardless of where the economy is in the cycle.
The Outlook for Construction Through Mid-2021 and Beyond
The ISM Services PMI data from May 2021 confirms that the construction sector is operating in an environment of robust demand tempered by significant operational challenges. The all-time high reading in the headline index reflects genuine strength across the economy, but the subindexes tell a more nuanced story of supply constraints, labor market tightness, and pricing pressure that will test the management capabilities of every construction firm.
Contractors who use this period of strong activity to strengthen their operational resilience, diversify their supply chains, invest in their workforce, and adopt data-driven management practices will be best positioned to navigate both the current expansion and the eventual moderation that follows. The construction firms that thrive in this environment will be those that treat the PMI data not as a curiosity but as an actionable signal for strategic decision-making across every dimension of their business.