 | The ISM Services index remained strong at 55.4 in May |
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Implications: For the third month in a row, the ISM Services index remained at a sturdy 55.4, the highest level in almost four years. This level suggests the services sector continues to grow at a healthy pace, although not quite as fast as the manufacturing sector. We think recent financial turmoil in Europe may be putting downward pressure on the overall ISM Services index, which tends to pick up sentiment even if those feelings are unrelated to actual changes in business behavior. By contrast, the business activity index, which has an even stronger statistical link with real GDP growth than the overall index, rose for the fourth month in a row to 61.1, signaling growth in the service sector may soon catch manufacturing. While the new orders index fell in May, it still remains well above 50, meaning future prospects for the services sector remain strong. On the inflation front, the prices paid index fell to a still uncomfortably high 60.6. Meanwhile, the employment index inched above 50 for the first time since late 2007, rising to 50.4 in May. This is consistent with our forecast that total payrolls increased 625,000 in May (reported tomorrow morning). Most of these jobs will be due to temporary Census-related hiring. But look for continued strong gains from private service-providers, who added 166,000 to payrolls in April.
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