Service Jobs Grow in May
Job growth in the U.S. service sector picked up last month even though overall activity slowed, and business productivity was stronger at the start of the year than first thought, according to generally upbeat economic reports released Thursday.
The Institute for Supply Management said its non-manufacturing index, which measures service-sector activity, eased to a still-strong 65.2 in May from a record 68.4 in April. A number above 50 indicates growth.
Although the overall index weakened a bit, ISM’s employment index moved up to 56.3 in May from 54.5 in April, bolstering hopes for a strong government report on May employment today.
The productivity report showed workers increasingly benefiting from a job market recovery, with business labor costs on the rise -- a potential inflation worry spot.
In that report, the Labor Department said nonfarm business productivity increased at a revised 3.8% annual rate in the first quarter, a bit faster than the 3.5% gain initially reported and a touch above expectations.
Although ratcheted upward, the productivity gain was still too small to offset a revised 4.6% rise in hourly compensation, which led to an upward revision in unit labor costs.
Unit labor costs -- a key gauge of wage pressure that measures the cost of labor per unit of production -- rose at a revised 0.8% rate in the first quarter, above the initially reported 0.5% advance.
In addition, the department revised sharply upward its measure of hourly labor compensation for the fourth quarter, to a gain of 4.2% from the initially reported 2.5% rise. The increasing cost of compensation means unit labor costs rose in the final three months of last year at a 1.7% rate -- not the earlier unchanged reading.
Overall, the productivity report offered a somewhat less benign inflationary backdrop than previously indicated as workers began to grab a larger slice of the economic pie.
The ISM report also showed rising inflationary pressures, with the prices-paid index jumping to 74.4 from 68.6, reflecting a jump in energy prices.
With production costs rising, U.S. businesses may now be more eager to pass along those costs in the form of higher consumer prices.
A separate report from the Labor Department underscored the improved tone in the U.S. job market.
The department said first-time claims for state jobless aid slipped 6,000 to 339,000 last week. Although a four-week moving average of claims, which smooths out fluctuations to provide a better picture of underlying trends, rose 5,250 to 341,000, the figure has held in its current range -- which economists say reflects a healthy job market -- since early March.
Separately, the Commerce Department said U.S. factory orders fell 1.7% in April, the biggest decline in a year, as demand for a wide array of goods dropped. However, the drop in often-volatile orders followed a 5% gain a month earlier.
