RTTNews - Service sector activity contracted at a slightly slower rate in the month of May, according to a report released by the Institute for Supply Management on Wednesday, although the index of activity in the sector increased by less than economists had expected.

The ISM said its index of activity in the service sector rose to 44.0 in May from 43.7 in April, although a reading below 50 indicates a continued contraction in the sector. Economists had been expecting a somewhat more notable increase to a reading of 45.0.

Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee noted, Respondents' comments remain mixed and vary by industry and company.

Some respondents indicate that there are signs of stabilization, while others continue to have a negative outlook on the economy, he added.

An acceleration in the pace of contraction in new orders limited the amount of improvement in the sector, with the new orders index falling to 44.4 in May from 47.0 in April.

At the same time, the report showed a modest slowdown in the pace of contraction in employment, as the employment index edged up to 39.0 from 37.0 in the previous month. With the increase, the index rose to its highest level since October.

Noting that the service sector makes up at least 80 percent of the labor force, Peter Boockvar, equity strategist at Miller Tabak, said, Combining this with the ADP number gives me reason to believe that Friday's payroll number shouldn't be that far from expectations.

ADP released a report earlier in the day showing that non-farm private employment fell by 532,000 jobs in May following a revised decrease of 545,000 jobs in April. Economists had expected a decrease of about 525,000 jobs.

Friday morning, the Labor Department is scheduled to release its employment report for May, with economists expecting the report to show that employment fell by 550,000 jobs.

The ISM report also said prices showed a slower pace of contraction compared to the previous month, with the prices index jumping to 46.9 in May from 40.0 in April.

Earlier this week, the ISM released a separate report showing that activity in the manufacturing sector contracted for the sixteenth consecutive month in May, although the pace of contraction slowed by more than economists had been expecting.

The report showed that the index of activity in the manufacturing sector rose to 42.8 in May from 40.1 in April. Economists had been expecting the index to edge up to a reading of 42.0.

A turnaround in new orders contributed to the improvement in the sector, with the new orders index climbing to 51.1 in May from 47.2 in April. This marked the first time the index has been above 50 since November of 2007.

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