U.S. service sector growth slows again in May – ISM survey

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WASHINGTON – U.S. services industry growth slowed for a second straight month in May, but businesses reported strong gains in new domestic and export orders, a survey showed on Friday.

The Institute for Supply Management said its non-manufacturing activity index fell to a reading of 55.9 last month from 57.1 in April. Economists polled by Reuters had forecast the non-manufacturing index dropping to 56.4.

A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity. The continued slowdown could reflect persistent supply constraints, which have been worsened by China’s zero-COVID policy and Russia’s dragging war against Ukraine.

The ISM’s measure of new orders received by services businesses rebounded to a reading of 57.6 last month from 54.6 in April. Spending is shifting back to services from goods. Businesses also reported an increase in export orders.

Its services industry employment gauge also rebounded to 50.2 from a reading of 49.5 in April. The rise in employment helped businesses to make some progress in clearing the backlog of unfinished work.

The ISM survey’s measure of supplier deliveries fell to 61.3 from 65.1 in April. A reading above 50% indicates slower deliveries. Services inflation continued to run high. A measure of prices paid by services industries for inputs slipped to a still-high reading of 82.1 from 84.6 in April.

The Federal Reserve has increased its policy interest rate by 75 basis points since March. It is expected to hike the overnight rate by half a percentage point at each of its next meetings this month and in July. Fed Vice Chair Lael Brainard said on Thursday she saw little case for pausing in September.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)