Growth in the nation's services sector accelerated in May, increasing at the fastest pace since early in the second half of last year. The reading, 56.3, was comfortably above the breakeven line of 50.0, which separates an expanding non-manufacturing sector from one that is contracting. The services sector is critical, as this component of economic activity accounts for some two-thirds of aggregate GDP.
All told, the survey, produced by the Institute for Supply Management, an Arizona-based trade group, indicated that the services sector gained further from April's reading of 55.2. Expectations had been for a slight uptick to 55.5. This was the second upbeat report put out by the ISM in three days this week, with its companion manufacturing index having registered a 55.4 score on Monday. Thus, these two important categories appear to be making strides in tandem.
Breaking this report down, we find that the score of 56.3 was the best reading since the August, 2013 result of 57.9. Over the past 12 months, the services sector's results have ranged from 51.6 to 57.9. The average for the 12 months stands at 54.5. Thus, we can see that non-manufacturing nicely outperformed the average result over this span.
Moreover, the May tally was the best result for the first five months of 2014, providing yet one more piece of confirming evidence that the impact of the long and painful winter is gradually easing.
As to the various component categories included here, we saw additional improvement in business activity and production last month, as this area went from an already healthy reading of 60.9 to one of 62.1. Other sectors advancing further included new orders (60.5 versus 58.2), employment (52.4 versus 51.3), and prices (61.4 versus 60.8). Areas backtracking slightly included supplier deliveries and new export orders. Encouragingly, backlogs jumped from 49.0, which suggested some contraction, to a comfortably expansionary 54.0.
Meantime, respondents noted that the healthcare sector was seeing flat to slightly positive demand, while the market is picking up in construction, and remains steady in finance and insurance.
This report, moreover, made it 53 months in a row that the services sector had improved, that is achieved with a score above 50.0. The latest report also helped to offset some dour news issued earlier this morning on April's trade gap, which widened ominously from March to the largest shortfall in exactly two years.
Taken as a whole, this was a welcome report and strengthens the case that the nation's economic output, or GDP, which eased by 1.0% in the first quarter, could well gain some 3% in the current term.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.