While the Institute for Supply Management released a report on Wednesday showing continued growth in U.S. service sector activity in the month of May, the pace of growth in the sector slowed by much more than economists had anticipated.
The ISM said its non-manufacturing index dropped to 55.7 in May after climbing to a five-month high of 57.8 in April.
A reading above 50 indicates continued growth in the service sector, although economists had expected the index to show a much more modest drop to a reading of 57.2.
With the much bigger than expected decrease, the non-manufacturing index fell to its lowest level since April of 2014.
Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, said, "Overall there has been a slight slowing in the rate of growth for the non-manufacturing sector."
"Respondents' comments are mostly positive about business conditions and indicate economic growth will continue," he added.
The pullback by the headline index was partly due to a notable decrease by the business activity index, which fell to 59.5 in May from 61.6 in April.
The new orders index also slid to 57.9 in May from 59.2 in April, while the employment index dropped to 55.3 from 56.7.
On the other hand, the prices index jumped to 55.9 in May from 50.1 in April, indicating a notable acceleration in the pace of price growth.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "All things considered, the survey still points to significant strength in the non-manufacturing sectors."
"When combined with the news from Monday that the ISM manufacturing index rebounded in May, these activity surveys are consistent with our view that second-quarter GDP growth will be close to 3% annualized," he added.
The ISM released a separate report on Monday showing that activity in the manufacturing sector grew faster than anticipated in the month of May.
The index of activity in the manufacturing sector climbed to 52.8 in May from 51.5 in April, while economists had expected the index to inch up to 51.8.
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