US services sector sees strongest growth in 9 months

Service sector activity in the U.S. rose to a nine-month high in May. The data signaled that the economy is continuing to recover, albeit slowly. The ISM services index rose 4.4 points to 53.8 in May. This was the highest level in nine months. 50.8 was expected. A reading above 50 indicates growth in the sector. The new orders index rose from 52.2 to 54.1, while the employment index rose from 45.9 to 47.1, but remains in contraction territory. “While survey participants reported that business was generally increasing, growth rates varied by company and sector. Employment continued to be tight, and most participants said inflation and interest rates were holding back business conditions,” said Anthony Nieves, director of the ISM Services Survey Committee. Nieves shared his forecast for the second half of the year to be better than the first. Fed officials are closely monitoring developments in the services sector to monitor price pressures and decide on the timing of rate cuts. The ISM Manufacturing Index, released this week, fell to its lowest level in three months due to a decline in orders. The U.S. economy grew by 1.3 percent on an annualized basis in the first quarter of the year, its weakest growth performance since 2022.