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Survey: US service firms grow at faster pace in May on jump in new orders, though hiring slows

U.S. service firms grew at a faster pace in May, driven by a jump in new orders. But a measure of hiring showed companies added fewer jobs. 

The Institute for Supply Management said Wednesday that its index of service-sector growth rose to 53.7 from 53.1 in April. Any reading above 50 indicates expansion. Last month's figure is below the 12-month average of 54.4.

A measure of employment fell to 50.1 from 52, the lowest since last July. Service firms have been the main source of job gains in the past several months. Manufacturers have cut back sharply on hiring this year.

The new orders index rose last month, and a gauge of sales also increased.

Pierre Ellis, an economist at Decision Economics, said the slowdown in hiring could mean that "managers are not too confident that the business improvement will last." Still, hiring may rebound if sales and orders remain healthy, Ellis added. 

The survey measures growth at businesses that employ about 90 percent of the U.S. workforce, ranging from construction companies and health care firms to retail businesses and restaurants.

Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. A steady recovery in housing and stronger consumer spending helped push the index higher earlier this year.

But Americans spent less in April as their income failed to grow. That signaled the economy may be slowing this spring.

The survey showed that 13 industries reported growth last month, led by hotels and restaurants, transportation and warehousing, and arts and entertainment. Five said business contracted, including mining, health care and real estate.

Most economists say higher Social Security taxes and steep cuts in government spending are dragging on growth. They forecast the economy will expand at around a 2 percent annual rate in the April-June quarter, down from 2.4 percent in the first three months of the year.

Still, in May consumers grew more confident, which suggests spending could rebound later this year. Measures of consumer confidence reached five year highs last month, as Americans grew more optimistic that the job market is healing.

And other trends may offset some of the impact of the taxes this year. Consumers have cut their debts. Rising home values and stock prices have increased household wealth, which typically makes people more likely to spend.

In general, service firms are in better shape than manufacturers. A separate survey by ISM released Monday showed that a measure of factory activity fell to the lowest level in four years in May.

Service companies have accounted for nearly all U.S. job gains in recent months. In April, they added 185,000 jobs, while manufacturers and government agencies cut jobs. Employers overall added 165,000 positions that month.

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