The US service economy expanded at a slower rate in May, although the underlying trend continued to show solid growth in business activity as job creation rose to its highest level since June 2014.
Markit Group’s flash US services PMI fell 1 percentage point to 56.4 in May, a four-month low. A reading above 50 signifies expansion in service activity, whereas a reading below that level indicates contraction.
The Markit PMI composite – a gauge of service and manufacturing activity – eased to 56.1 in May from 57.0 the previous month. Last week Markit said manufacturing PMI slowed to a 16-month low in May, as new orders rose at the weakest rate since January 2014. The flash manufacturing PMI fell to 53.8 from 54.2.
The flash estimate is based on 85 percent of total survey responses. Markit Group will post its final services PMI estimate early next month.
Business activity remained elevated across the service sector in May, but the latest expansion was slower than the previous month. New business intakes rose at the slowest rate since the start of the year, while volumes of unfinished work increased only marginally. Despite the slowdown, service providers added payrolls at the fastest rate since June 2014, once again confirming that the labour market was on solid footing.
“The US economy looks to have grown at a healthy pace in May, providing further evidence that the rate of expansion has picked up from the weak start to the year,” said Markit chief economist Chris Williamson in a statement. “The resilience of domestic demand in particular helped encourage companies to take on extra staff at the fastest rate for almost a year.”
He added, “The survey data put the economy on course to rebound in the second quarter, with GDP rising at an annualised rate of around 3%, with non-farm payroll growth continuing to run around the 200,000 level.”
Durable Goods Orders Decline
In a separate report on Tuesday the Commerce Department said durable goods orders declined 0.5 percent in April, but that business investment plans increased at a solid rate for a second straight month. Orders for non-defense capital goods excluding aircraft, a key proxy for business spending, rose 1 percent following an upwardly revised gain of 1.5 percent.
The US economy is forecast to rebound in the second quarter, although the extent of that rebound suggests the recovery may have hit a soft patch. On Friday the Commerce Department is expected to revise down its first quarter GDP estimate to show contraction of up to 1 percent.
Weaker output growth gives the Federal Reserve plenty of justification in maintaining rock bottom interest rates for a while longer. The Fed all but ruled out a June rate increase in April, the minutes of the latest FOMC policy meetings revealed.