Business activity growth in the U.S. services sector has extended to a 15-month period after accelerating slightly in May and reaching a three-month high, according to the IHS Markit Services Purchasing Managers’ Index (PMI). New business grew at the fastest rate since January. Input price inflation decreased somewhat while prices charged by U.S. service providers increased.
“Although service sector business activity picked up in May, the PMI surveys for manufacturing and services collectively indicate only a modest pace of economic growth so far in the second quarter,” said Chris Williamson, chief business economist at IHS Markit. “The key message from the PMI is that the economy is enjoying steady, albeit unspectacular, growth, and that the pace of expansion has been slowly lifting higher in recent months.”
The rate of growth in new business rose to a four-month high due to stronger demand from new and existing clients. The job creation trend continued in May from its start in March 2010, with payroll expansion accelerating to a three-month high. New projects and higher overall business activity were listed as the reasons for the rise in staffing. Output prices rose for the 15th consecutive month, with the rate of increase the second fastest in the current sequence, Markit said.
“In another sign of the economy’s underlying steady expansion, average prices charged for goods and services is running at the second highest in almost two years, indicating that rising demand is helping restore some pricing power,” Williamson said.
Meanwhile, the Institute for Supply Management headline nonmanufacturing index dropped more than expected in May to a reading of 56.9, though it still indicates a solid pace of expansion, according to Wells Fargo Securities. New orders slipped 5.5 points from a high in April. Export orders increased or remained flat in April, while 5% of survey respondents reported declines in May. Employment reached its highest level since July 2015.
– Adam Fusco, associate editor