WASHINGTON -- U.S. service firms grew more quickly last month as production, hiring and new orders increased, adding to signs that the economy is accelerating after dipping at the start of the year.
The Institute for Supply Management said Wednesday that its service-sector index rose to 56.3 in May, the best reading since August. The figure is an improvement from the 55.2 posted in April. Any figure above 50 indicates expansion.
"[The report] suggests the strong momentum we saw the past few months is being sustained to carry growth from Q2 into the second half of the year," said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, who projected a reading of 56.2.
The report points to solid growth after a brutal winter caused the economy to shrink 1 percent during the January-March quarter. The gains in new orders and the backlog of existing orders suggest a faster rate of hiring in the months ahead as businesses rush to meet the demand.
"With this level of activity and new orders in the pipeline, employment is going to have to come up," said Anthony Nieves, chairman of the institute's Services Survey Committee. "There is no way that companies will be able to sustain a good level of output if they don't have the bodies to do it."
The services survey covers businesses that employ 90 percent of the workforce, including retail, construction, health care and financial services firms. The Institute for Supply Management is a trade group of purchasing managers.
New orders rose for the fifth consecutive month, up 2.3 points to 60.5 and the highest reading since January 2011. The production component also climbed to 62.1, its strongest level since December 2010. Of the 18 industries surveyed in the report, only the mining sector contracted last month.
Several other economic reports indicate that the economy is gaining momentum. The Institute for Supply Management's separate survey of manufacturers on Monday rose to 55.4 in May. Both production and orders notched solid gains.
Auto sales improved in May as well. On Tuesday, Chrysler, General Motors, Nissan and Toyota all reported double-digit sales gains year-over-year. Ford's sales rose a better-than-expected 3 percent, while Hyundai's were up 4 percent.
The government issuesthe May jobs report on Friday. Employers added 288,000 jobs in April, and the unemployment rate fell to 6.3 percent. Economists expect 220,000 jobs were created in May, according to a FactSet survey.
But payroll processer ADP said Wednesday that private employers pulled back on hiring in May, adding just 179,000 jobs, down from 215,000 in the previous month. April's figure was revised slightly lower. Still, the gain in May was in line with the ADP's average monthly hiring figures for the past 12 months.
The data suggest that Friday's jobs report could also show a modest slowdown from April's big gain of 288,000 jobs. But the ADP numbers cover only private businesses and often diverge from the government's more comprehensive report.
Economists forecast that the government's figures will show that employers added 220,000 jobs in May, according to a survey by FactSet. Analysts generally didn't change their estimates in response to the ADP report.
Hiring appears to be holding steady even though the economy shrank in the first three months of the year at a 1 percent annual rate, the first contraction in three years. Most of the slowdown has been blamed on unseasonably cold weather, which shut factories, disrupted shipping, and kept shoppers away from stores and malls.
"The labor market remains strong and the economy is still recovering from the weather-induced hit in the first quarter," Paul Dales, senior U.S. economist at Capital Economics, said in a note to clients.
Information for this article was contributed by Josh Boak and Christopher S. Rugaber of The Associated Press and Jeanna Smialek of Bloomberg News.
Business on 06/05/2014