The services sector is sending warning shots suggesting possibly soft economic growth in the second quarter.
Markit Economics’ flash purchasing manager’s index (PMI) slipped to 51.2 in May. Economists had forecast that the PMI climbed to 53 from 52.8.
Markit’s survey of service providers — who contribute to two-thirds of economic activity — showed that their business optimism fell to the lowest level in nearly seven years.
Service-sector activity rose at the slowest pace in three months, and hiring fell to the slowest pace since December 2014.
JP Morgan economist Daniel Silver noted that many of the other series in the report were weak by historical standards.
“Having correctly forewarned of the near-stalling of the economy in the first quarter, the surveys are now pointing to just 0.7% annualized GDP growth in the second quarter, notwithstanding any sudden change in June,” said Markit chief economist Chris Williamson.
The preliminary index remains above 50, which shows that the services sector is still in expansion.
Service providers told Markit that client demand was weak, as a less favourable economy weighed down their businesses. Some companies even cited the presidential election as a source of uncertainty.
Markit’s April report showed that the sector grew at a faster-than-expected pace. However, job creation slowed down: Markit’s survey found that 160,000 jobs were added, down from an average of 200,000 in the first quarter.
An advance estimate of Q1 gross domestic product showed the economy grew 0.5%. The second estimate, out on Friday, is expected to show an upward revision to 0.9%, according to Bloomberg.