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US Services Sector Growth Beats Estimate; Factory Orders Up

Federic Cirou | PhotoAlto | Getty Images

Activity in the vast U.S. services sector picked up slightly in May, though growth was still lackluster and a measure of employment fell to its lowest level in close to a year. A separate report showed that new orders for U.S. factory goods rose in April.

The Institute for Supply Management said its services index edged up to 53.7 last month from 53.1 in April, coming in above economists' expectations for 53.5.

(Click here to track the U.S. stock market following the closing bell.)

A reading above 50 indicates expansion in the sector. The May reading was still off this year's peak so far of 56.0, which was hit in February.

The forward-looking new orders component rose to 56.0 from 54.5, though the employment measure slipped to the lowest level since last July at 50.1 from 52.0.

Both overseas and domestic demand appeared to cool with the exports index falling to 50.0 from 53.5, while imports tumbled to 49.5 from 58.5

US Factory Orders Rise

New orders for U.S. factory goods rose in April, but not enough to reverse the prior month's plunge, adding to signs of a slowdown in manufacturing activity.

The Commerce Department on Wednesday said new orders for manufactured goods increased 1 percent. March's orders were revised to show a 4.7 percent decline instead of the previously reported 4.9 percent tumble.

Economists polled by Reuters had forecast orders received by factories rising 1.5 percent.

Manufacturing has been hit by a combination of deep government spending cuts and slowing global demand, especially in China and the recession-hit Europe.

Data on Monday showed a gauge of national factory activity contracted in May for the first time in six months, dragged down by declining orders.

This suggests the weakness in factory activity, also highlighted by a drop in industrial production in April, will probably persist for some time.

The Commerce Department report showed factory orders were lifted by an 8.4 percent jump in transportation equipment on the back of strong orders for automobiles, and civilian and defense aircraft.

Orders excluding the volatile transportation category slipped 0.1 percent after falling 2.8 percent in March.

Outside transportation there were gains in orders for machinery, computer and electronic products, primary metals and electrical equipment, appliances and components.

Unfilled orders for manufactured goods rose 0.3 percent and were up 0.8 percent excluding aircraft, a positive sign for factories. Shipments fell for second straight month.

Stocks of unsold factory goods edged up 0.2 percent, showing no sign inventories are piling up, which should help the sector in the long-run. Factory inventories account for more than a third of business inventories.

The inventories-to-shipments ratio was 1.31, the highest since June 2012, and up from 1.30 in March. The unfilled orders-to-shipments ratio increased to 6.26 from 6.21.

The Commerce Department also said orders for durable goods, manufactured products expected to last three years or more, rose 3.5 percent instead of the 3.3 percent increase reported last week.

Durable goods orders excluding transportation were up 1.5 percent rather than 1.3 percent.

Orders for non-defense capital goods excluding aircraft - seen as a measure of business confidence and spending plans - increased 1.2 percent as previously reported.

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