June 3, 2020 / 2:06 PM / a month ago

U.S. services sector off 11-year trough; still contracting

FILE PHOTO: A family is served drinks at a restaurant while Occupy Wall Street activists protest through the streets of New York's Financial District on the one-year anniversary of the movement, in New York September 17, 2012. REUTERS/Andrew Burton (UNITED STATES - Tags: BUSINESS CIVIL UNREST)

WASHINGTON (Reuters) - U.S. services industry activity pushed off an 11-year low in May, but businesses appeared in no rush to rehire workers as they reopen, supporting views the economy could take years to recover from the devastation caused by the COVID-19 crisis.

The Institute for Supply Management (ISM) said on Wednesday its non-manufacturing activity index rose to a reading of 45.4 last month from 41.8 in April, which was the lowest since March 2009 and first contraction since December 2009.

A reading below 50 indicates contraction in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index increasing to a reading of 44.0 in May.

The report came on the heels of the ISM’s manufacturing survey on Monday showing factory activity easing off an 11-year low in May. Sentiment surveys have suggested the slump in economic activity triggered by COVID-19 has bottomed.

The economy contracted at a 5% annualized rate in the first quarter, the worst performance since the 2007-09 recession. Gross domestic product is expected to decline at a rate as sharp as 40% in the second quarter, which would the biggest contraction in output since the Great Depression of the 1930s.

The ISM survey’s measure of new orders for the services industry increased to a reading of 41.9 in May from 32.9 in April, which was the weakest since the series started in 1997. The survey’s index of services industry employment edged up to 31.8 last month from 30.0 in April, which was the lowest since 1997.

That points to the distress in the labor market, which is expected to be underscored by the government’s closely watched employment report for May, scheduled to be released on Friday.

According to a Reuters survey of economists, nonfarm payrolls likely dropped by 8 million jobs last month after a historic 20.537 million plunge in April. The unemployment rate is forecast rocketing to 19.7%, a post-World War Two high, from 14.7% in April.

Reporting By Lucia Mutikani; Editing by Chizu Nomiyama

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