American service providers expanded in May at the slowest pace in more than two years as companies curtailed orders, pointing to a more muted pickup in the economy after a lukewarm start to 2016.
The Institute for Supply Management’s non-manufacturing index dropped to 52.9, the weakest since February 2014, from 55.7 in April, the Tempe, Arizona-based group’s data showed Friday. Readings above 50 in the measure that covers almost 90 percent of the economy signal growth. The median forecast in a Bloomberg survey called for 55.3.
The slump in bookings for non-manufacturing industries that include construction, retail and real estate matched the biggest month-to-month decrease since November 2008. The figures, along with a weak May jobs report, indicate the companies that make up the bulk of the economy are cutting back on capital investment and hiring after a first-quarter growth slowdown that may prompt the Federal Reserve to put off an increase in interest rates.
“The slowdown further suggests this years Q2 rebound will be more modest than last years,” Sophia Kearney-Lederman, an economist at FTN Financial, said in an e-mail. It’s one more reason for the Fed to continue to ‘wait and see’ at the June meeting.”
Estimates in the Bloomberg survey of 74 economists ranged from 52.4 to 57.3. The measure has averaged 54 this year, compared with 57.2 in 2015.
Anthony Nieves, chairman of the ISM non-manufacturing survey, said the figures pointed to a “cooling off” in service industries.
Fourteen of 18 industries showed growth last month, led by health care and food services. Four, including mining and professional services, said business shrank, according to the report.
Details from the report showed the new orders gauge decreased by 5.7 points to 54.2 in May, while the measure of services employment dropped to 49.7, matching the lowest since February 2014, from 53.
The drop in the group’s measure of employment corroborates figures from the Labor Department on Friday that showed payrolls climbed by just 38,000 in May, the least since September 2010. The slowdown in job growth was broad-based.
The business activity index, which parallels the ISM’s factory production gauge, fell to 55.1 last month from 58.8 in April. A measure of prices paid advanced to 55.6, the highest since September 2014, and indicating costs were rising at a faster pace, from 53.4.
The supplier deliveries gauge, which measures how quickly companies are able to receive orders from suppliers, rose to 52.5 from 51 the prior month. A reading above 50 means deliveries slowed, which is a positive demand signal as it indicates companies had trouble keeping up.
The ISM services survey covers an array of industries, including retail, health care, agriculture and construction.
The group’s manufacturing survey earlier this week showed factories expanded a bit faster in May. The gauge rose to 51.3 from 50.8 in April.