WASHINGTON – U.S. services companies expanded at a slightly slower pace in May compared with the previous month, a sign that modest economic growth is likely to continue.
The Institute for Supply Management, a trade group of purchasing managers, said Monday that its services index slipped last month to 56.9 from 57.5 in April. Any reading above 50 indicates expansion. Sales and new orders grew more slowly, while a measure of employment showed companies stepped up hiring.
Growth has likely picked up in the April-June quarter after a sluggish start to the year. Americans are spending a bit more, which boosts services firms, such as retailers, restaurants and hotels. Economists forecast growth will reach an annual pace of 3 percent, up from just 1.2 percent in the January-March quarter.
Last month's reading is still above the 2016 average of 54.9, several analysts pointed out.
"Not bad, not bad at all," Jennifer Lee, an economist at BMO Capital Markets, said. "Economic momentum has slowed a bit but the pace is still decent."
The report is likely to keep the Fed on track to lift interest rates at its meeting next week, Lee added.
A measure of new orders fell sharply, to 57.7 from 63.2, a sign that sales may slow in the future. Still, that figure shows orders are still growing.
And a gauge of hiring jumped to 57.8, from 51.4 in the previous month. That suggests companies are adding jobs at a healthy pace, despite last Friday's report, which showed employers added just 138,000 jobs, below last year's rate.
Also Monday, the government said a measure of workers' productivity, or output per hour, was flat in the first three months of the year. That suggests companies have to add workers to produce more output, which is less efficient way of increasing growth than increasing the productivity of existing workers.
Flat productivity also holds back workers' pay. When employees are more efficient, companies can raise wages without increasing prices. Hourly pay increased just 2.5 percent in May from a year earlier, the government said last week, a tepid pace historically.