By Xavier Fontdegloria
The expansion pace of the services sector in the U.S. climbed to a new record high in May supported by a marked increase in new business, according to data from IHS Markit released Thursday.
The final reading for the U.S. Services Purchasing Managers' Index for May was 70.4, up from 64.7 in April and above the flash estimate of 70.1. Economists polled by The Wall Street Journal expected the final services PMI to come in at 70.1.
The PMI signals a strong and broad-based growth rate for the services sector, as the reading is well above the 50-point threshold that separates expansion from contraction.
The upturn in output was the fastest on record, with the rate of expansion accelerating for the fifth month running, IHS Markit said.
"The U.S. economic recovery shifted up a gear in May, with output of the combined manufacturing and service sectors surging past all prior peaks by an impressive margin," said Chris Williamson, chief business economist at IHS Markit.
The strong correlation between the PMI and the gross domestic product means the economy looks set to enjoy rapid and potentially double-digit growth in the second quarter, he said.
Driving the expansion in output was a quicker rise in new business across the service sector which was attributed to stronger business and consumer confidence stemming from a successful vaccination program and the reopening of the economy.
May data also indicated a quicker rise in input costs across the service sector, as supplier price increases intensified cost pressures. The rate of inflation accelerated for the seventh month running and was the sharpest on record, the report said.
Service providers stepped up their efforts to pass on higher costs to clients, with the pace of charge inflation quickening to the steepest in the survey's history, IHS Markit said.
"These unprecedented output and price growth rates will inevitably lead to speculation about an earlier than previously expected tapering of Fed policy," Mr. Williamson said.
IHS Markit said the Composite PMI Index came in at 68.7 in May, up from 63.5 in April. The reading marks a new record high, signaling the strongest upturn in private sector business activity since data collection began in October 2009.
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(END) Dow Jones Newswires
June 03, 2021 10:15 ET (14:15 GMT)Copyright (c) 2021 Dow Jones & Company, Inc.