U.S. service industries expanded at the best pace since February amid a rebound in employment, a signal of labor- market strength before the government’s jobs report due Friday.
The non-manufacturing index rose to 56.9 in May, according to an Institute for Supply Management survey Wednesday that topped almost all economist estimates in Bloomberg’s survey. Three of four components advanced, led by the employment gauge rising the most in two years. New orders and business activity also improved.
The fresh signs of strength follow two months of weaker readings on service industries that account for about 90% of the economy. The gain contrasts with a string of softer reports on retail sales, factory orders and home purchases, which along with intensifying trade tensions have spurred investors to bet the Federal Reserve will cut interest rates this year to shore up growth.
Despite the strong jobs reading from ISM, a separate report Wednesday from the ADP Research Institute signals employment trends may be weakening. Companies in May added 27,000 jobs, the fewest since 2010.
ISM's gauge of supplier deliveries fell below 50 for the first time since 2015, indicating businesses are facing fewer supply-chain bottlenecks. Order backlogs also declined to a four-month low.
The imports index slid the most in nearly four years as export orders cooled, signs of continued fallout from an intensifying trade war with China that’s adding to uncertainty for companies. The inventories measure advanced, suggesting a buildup as companies strived to avoid tariffs, and respondents said they felt the levels were too high.