Service sector

U.S. service sector activity grows at slowest pace since early 2021

Numbers: A closely watched barometer of business conditions at service-oriented businesses such as banks, retailers and hospitals fell 1.2 points to 55.9 in May, the Institute for Supply Management said on Friday. This is the lowest reading since February 2021.

Economists polled by The Wall Street Journal had forecast a reading of 56.7%.

Numbers over 50 are considered positive for the economy and anything over 55 is considered exceptional.

Key details: The decline was driven by lower business activity and slower deliveries from suppliers. Commercial activity fell 4.6 points to 54.5.

In a sign that supply chain issues may be easing, supplier deliveries fell to 61.3 and order books fell to 52, two 14-month lows. Pricing pressures eased but remained elevated.

Employment rose back above 50 in May.

Big Picture: The services sector is showing signs of weakening as the Federal Reserve begins to raise interest rates. However, Steven Stanley, chief economist at Amherst Pierpont, said companies were struggling to keep up with demand. “Supply chain issues became less prevalent in May but were still pervasive,” he said,

What do they say? “Overall, service sector growth is slowing but remains historically strong. While supply chain disruptions and margin pressures make the outlook highly uncertain, there are (so far) few signs that this downturn is more than just an expected deceleration after increased activity.” , said analysts at Contingent Macro Advisors.

Market reaction: DJIA Stocks,
-0.13%

SPX,
+0.22%
were lower at the opening after the strong employment data. The yield of the 10-year Treasury note TMUBMUSD10Y,
3.236%
approached 3%.