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US services firms saw May slowdown, pace of new orders and hiring slide

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WASHINGTON — U.S. service firms grew in May at the slowest pace in a year, as both new orders and hiring slipped.

The Institute for Supply Management said Wednesday that its services index fell to 55.7 in May from 57.8 in April. Still, any reading over 50 indicates that services firms are expanding.

The slower growth rate reflects the uneven rebound from a brutal winter, which caused the economy to shrink at an annualized rate of 0.7 percent during the first quarter of 2015. Hiring has continued at a brisk pace, leading many economists to forecast solid growth in the coming months. Yet consumers have been reluctant to part with their paychecks, choosing to save instead of spending in ways that bolster short-term growth.

"The indications are that we have had a slowing or cooling off here," said Anthony Nieves, chairman of ISM's non-manufacturing business survey Committee.

But because the average still points to expansion, economists say that gross domestic product will improve.

"It is still at a level that historically has been consistent with 3 percent GDP growth," said Paul Ashworth, chief U.S. economist at Capital Economics.

The ISM is a trade group of purchasing managers. Its survey of services firms covers businesses that employ 90 percent of the American workforce, including retail, construction, health care and financial services companies.

The May survey reported a 1.3 percentage point drop in new orders to 57.9, while the employment component slid to 1.4 points to 55.3. Both indicate that growth last month was slightly less robust than in April.

Many Americans have been unwilling to splurge. Consumer spending was flat from April to March, the Commerce Department said Monday. Cheaper gasoline has yet to prompt more spending, as the personal savings rate was 5.6 percent last month, the second highest level since December, 2012.

All but one of the 15 services industries tracked by ISM reported growth last month. The only sector that shrank was mining, a sector hurt by lower oil prices.

PHOTO: FILE - In this May 14, 2014, file photo, waiter Spencer Meline serves a customer at Ivar's Acres of Clams restaurant on the Seattle waterfront. The Institute for Supply Management, a trade group of purchasing managers, issues its index of non-manufacturing activity for May 2015, on Wednesday, June 3, 2015. (AP Photo/Elaine Thompson, File)
FILE - In this May 14, 2014, file photo, waiter Spencer Meline serves a customer at Ivar's Acres of Clams restaurant on the Seattle waterfront. The Institute for Supply Management, a trade group of purchasing managers, issues its index of non-manufacturing activity for May 2015, on Wednesday, June 3, 2015. (AP Photo/Elaine Thompson, File)

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