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U.S. Service Sector Index Rebounds From Eleven-Year Low In May

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Activity in the U.S. service sector continued to contract in the month of May, although a report released by the Institute for Supply Management on Wednesday showed the pace of contraction slowed by even more than economists had been expecting.

The ISM said its non-manufacturing index rebounded to 45.4 in May after plunging to an eleven-year low of 41.8 in April.

A reading below 50 still indicates a contraction in service sector activity, but the index came in above economist estimates for a reading of 44.0.

Despite the rebound by the index, Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee, noted, "Respondents remain concerned about the ongoing impact of the coronavirus."

"Additionally, many of the respondents' respective companies are hoping and/or planning for a resumption of business," he added.

The bigger than expected increase by the headline index was partly due to a substantial rebound by the business activity index, which spiked to 41.0 in May from 26.0 in April.

The new orders index also jumped to 41.9 in May from 32.9 in April, while the employment index rose to 31.8 from 30.0. The readings below 50 still indicate contraction.

On the inflation front, the prices index inched up to 55.6 in May from 55.1 in April, pointing to a slight acceleration in the pace of price growth.

"We may be past the bottom and non-manufacturing activity may start to slowly improve in June, but we are still a long way from returning to pre-virus conditions," said a note from economists at Oxford Economics.

The added, "The road ahead is fraught with significant downside risks, and severe demand destruction, supply chain disruptions, tighter financial conditions, and concerns of a second wave of coronavirus contagion minimize chances of a strong rebound."

The ISM released a separate report on Monday showing manufacturing activity in the U.S. contracted at a slightly slower rate in the month of May.

The organization said its purchasing managers index rose to 43.1 in May from 41.5 in April, coming in just below economist estimates for a reading of 43.6.

While the index rebounded from its lowest level since April of 2009, a reading below 50 still indicates a contraction in manufacturing activity.

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