U.S. Service Sector Index Climbs To Nine-Month High In May

(RTTNews) - With most respondents indicating that there is steady incremental growth, the results of the Institute for Supply Management's service sector survey released on Wednesday showed that the index of activity in the sector rose by more than economists had anticipated in the month of May.

The ISM said its non-manufacturing index climbed to 56.3 in May from 55.2 in April, with a reading above 50 indicating growth in the service sector. Economists had been expecting the index to show a more modest increase to a reading of 55.5.

The bigger than expected increase lifted the non-manufacturing index to its highest level since reaching 57.9 in August of 2013.

A notable acceleration in the pace of growth in new orders contributed to the increase by the headline index, with the new orders index jumping to 60.5 in May from 58.2 in April.

The report also showed a notable turnaround by the backlog of orders, as the backlog of orders index surged up to 54.0 in May from 49.0 in April.

The business activity index also climbed to 62.1 in May from 60.9 in April, while the employment index rose to 52.4 from 51.3.

Jay Morelock, an economist at FTN Financial, said, "The ISM non-manufacturing index covers almost 90% of the economy, making above-consensus strength a positive sign for increased growth in Q2."

"New orders and business activity are both at their highest since the beginning of 2011, indicating strength in the service sector should continue for several months," he added. "The next step is business investment and hiring."

On the inflation front, the prices index edge up to 61.4 in May from 60.8 in April, indicating slightly faster price growth.

The ISM released a separate report on Monday showing a slight acceleration in the pace of growth in the manufacturing sector in May, although the data had to be corrected twice due to technical glitches.

The revised report showed that the ISM's index of activity in the manufacturing sector inched up to 55.4 in May from 54.9 in April, coming in nearly line with economist estimates of 55.5.

"A weighted average of the two ISM activity indices is now consistent with a rebound in annualized GDP growth to around +3.0% in the second quarter from -1.0% in the first," said Paul Dales, Senior U.S. Economist at Capital Economics. "We still think it could be closer to 3.5%."