Survey Hints at Slowdown in Services

Growth slowed in the giant U.S. service sector in May as prices paid by service providers jumped, a survey released Monday suggests.

The Institute for Supply Management’s services index eased to 60.1 in May, in line with forecasts and down from 63 in April. A number above 50 indicates growth in the sector.

“The service sector is growing at a good pace, giving the economy a cushion to deal with factors like rising interest rates and elevated energy prices,” said Patrick Fearon, senior economist at A.G. Edwards & Sons in St. Louis.

The survey’s prices-paid index surged to 77.5 from 70.5. That was its highest since September, when Hurricane Katrina caused a huge jump in energy costs, and comes at a time when investors are watching inflation closely to gauge whether the Federal Reserve will keep raising interest rates.

The survey’s employment component rose to 58.0 from 56.5, a somewhat surprising development given that official employment data for May, reported last week, painted a much grimmer picture of the labor market.

Demand for new orders slipped to 59.6 from 64.6, suggesting that a further softening in service growth is possible over the coming months.

The service sector makes up about 80% of U.S. economic activity and includes businesses such as restaurants, hotels, hair salons, banks and airlines.

Thriving demand for services has allowed the world’s largest economy to maintain its global competitive edge, although many economists fear U.S. consumers -- the engine of American growth -- may be running out of steam.

The economy grew at a blistering 5.3% clip in the first quarter, but analysts foresee a slowdown in the housing market as significantly curtailing consumers’ ability to spend.

Optimists hope business spending can pick up the slack from consumers, although the institute’s manufacturing sector data published last week indicated that that part of the economy, too, was losing momentum.