Economic activity across the U.S. service sector decelerated in May but continued to expand at a solid pace.
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The Institute for Supply Management on Monday said its index of nonmanufacturing activity -- which tracks a range of industries including retailing, health care, finance and mining -- fell to 56.9 in May from 57.5 in April.
Economists surveyed by The Wall Street Journal had expected a May reading of 57.0. A number above 50 indicates expansion while a reading under 50 indicates contraction.
The report "suggests that, despite the weaker payrolls data for May released last week, the economy remains on course to recover from the disappointing start to the year," said Andrew Hunter, U.S. economist at Capital Economics, in a note to clients.
The modest pullback after a strong April reading was "nothing to be concerned about," said Anthony Nieves, who oversees the ISM survey. The economy, he said, is "on solid ground right now."
The key details in Monday's report were mixed. The business activity and production index fell to 60.7 in May from 62.4 the prior month, and the new-orders index was down to 57.7 from 63.2 in April. But the index tracking employment jumped to 57.8 last month from 51.4 in April, hitting its highest level since July 2015.
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"The employment subcomponent points to stronger hiring in the services sector for June payrolls," Barclays chief U.S. economist Michael Gapen said in a note to clients.
The prices index fell to 49.2 in May, signaling decline after 13 consecutive months of businesses reporting rising prices for materials and services.
"I'd like to see how things trend out" on prices in the coming months, Mr. Nieves said. But, he added, "All indications are there is no true pricing power out there right now."
Some 17 sectors reported growth during May, led by real estate and construction, while just one industry -- educational services -- reported contraction last month.
Over all, the gauge has signaled continuous nonmanufacturing economic growth since the beginning of 2010. The U.S. recession ended in mid-2009.
The broader U.S. economic expansion has remained on track so far in 2017.
The unemployment rate in May fell to 4.3%, its lowest level in 16 years, though the pace of hiring slowed, the Labor Department reported last week. Gross domestic product expanded at a modest 1.2% seasonally adjusted annual rate in the first quarter but is expected to pick up in the current quarter; forecasting firm Macroeconomic Advisers on Monday predicted a second-quarter growth rate of 2.9%, unchanged from their Friday prediction.
A separate ISM gauge tracking the manufacturing sector inched up in May to 54.9, marking nine consecutive months of industrial expansion.
Write to Ben Leubsdorf at firstname.lastname@example.org
(END) Dow Jones Newswires
June 05, 2017 12:41 ET (16:41 GMT)