Service Sector Index Reports Mixed

At a weak 50.9, the final services index for May was unchanged from the mid-month flash and 2.1 points below final April. This is a 3-year low (since February 2016).

The sample reports softening demand in both domestic and foreign markets with business confidence also at a 3-year low. Growth in new orders is at yet another 3-year low. Despite the slowing, the sample continues to expand its workforce in what is a favorable indication for Friday's monthly employment report. Prices readings are flat with the sample reporting customer resistance to higher sales prices.

Also at 50.9, the final composite index for May (which includes Monday's 50.5 showing for manufacturing) was unchanged from the flash and also 2.1 points below final April. May's composite result is also a 3-year low.

Markit's data have been slowing more than other indications but slowing or uneven results are nevertheless the overall theme right now for economic data.

...meanwhile...

Boosted by strong acceleration in hiring, ISM's non-manufacturing index topped Econoday's consensus range at 56.9 to indicate the fastest rate of growth for this sample since February.

Employment jumped 4.4 points to 58.1 and the best showing since October last year. New orders are also a highlight, up 5 tenths to a very strong 58.6 which points to gains for the business activity index (production) in future months. Business activity in May was already very strong, over 60 at 61.2 for a 1.7 point gain.

The strength in this report is underscored by its depth as the sector breakdown shows 16 of 17 industries reporting composite growth in the month.

The jobs reading in this report together with similar jobs strength in this morning's services PMI are positive indications for Friday's employment report and will help take the edge off of ADP's very low private payroll estimate which was also released this morning. As for the general strength of ISM's data, this sample has generally reported stronger than average results for more than a year. Nevertheless, the results are a reminder that US economic growth proved solid in the first quarter and may yet so again, whatever the approaching headwinds from trade, in the second quarter as well.