US services sector growth slows in May

[WASHINGTON] The huge US services sector slowed in May, amid a dramatic decline in key categories including export orders, imports, prices and new orders, the Institute for Supply Management said Monday.

"Business activity still shows growth even though it is off from April," and 17 of the 18 industries surveyed still report expansion, said Anthony Nieves, chair of ISM's Non-Manufacturing Business Survey Committee.

The ISM non-manufacturing index slipped 0.6 percentage points from April to 56.9 per cent, on declines in key categories, but was supported by a solid gain in employment to 57.8 per cent, an increase of 6.4 points.

Only the educational services category reported slowing, the report said.

The index captures activity among all segments of the services sector, the largest component of the US economy. A reading of more than 50 per cent indicates expansion, and despite the modest slowdown the sector has been growing for 89 months.

Analysts noted that despite the apparent slowing, the measure remains above the six-month average of 56.7 per cent, and above the 2016 average of 54.5 per cent.

"The dip in the headline is trivial," Ian Shepherdson, chief economist of Pantheon Macroeconomics, said in a research note.

Among the more worrisome components of the services report, the new orders index fell 5.5 points from April to 27.7, while the new export orders index plunged 11 points to 54.5, and imports fell 4.5 points to 48.5.

Another standout was the 8.4 point dip in the prices index to 49.2 per cent, after 12 straight months above the key 50 per cent threshold, despite a four-point drop in April. This is in keeping with tepid inflation in other areas of the economy.

Mr Nieves told reporters in a conference call he was reluctant to read too much into a single month's data, however. "There is no true pricing power out there right now," he said.

The sector if facing a lot of competition, particularly in retail, he said.

He said the increase in employment came as 17 of the 18 industries surveyed added jobs in the month, and it "buoyed the index for the month."

The last time the employment index was this high was July 2015 when it hit 59.1 per cent.

However, Mr Nieves noted with concern the lack of available skilled workers which could become more evident down the road, especially in construction which will ramp up in the summer months.

"It's been a trend for some time. It's not an industry that's attracting many young folks to trades," Mr Nieves said, so companies do not have a pool to draw from for skilled trades to support the construction industry in particular.

Trades and "things that require apprenticeships are not as attractive to millennials."

AFP