Investing.com – Activity in the U.S. services sector continued to show weakness in May while business optimism eased to its lowest for over six-and-a-half years, according to preliminary data released on Monday.
In a report, market research group Markit said that its flash services purchasing managers’ index (PMI) fell to 51.2 in May from the prior month’s final reading of 52.8.
Analysts had expected an increase to 53.1 this month.
On the index, a reading above 50.0 indicates expansion, below indicates contraction.
Services make up approximately 80% of the U.S. economy which makes the data key for interpreting growth.
According to the report, this was the weakest rise in service sector activity for three months, while service providers reported the slowest rate of staff hiring since December 2014.
Furthermore, business optimism dropped to its lowest recorded number since the survey was begun in October 2009.
Markit chief economist Chris Williamson said that “A deterioration in the survey data for May deal a blow to hopes that the U.S. economy will rebound in the second quarter after the dismal start to the year.”
Williamson added that, together with the manufacturing PMI data, the surveys are pointing to annualized growth of just 0.7% in the second quarter.
“With no sign of any growth rebound and the labour market cooling, only one of the Fed’s three tests fora June rate hike (rising price pressures) is passed according to the PMI data,” he added.
In an immediate reaction, EUR/USD was trading at 1.1148 from around 1.1147 ahead of the release of the data, GBP/USD was at 1.4702 from 1.4692 earlier, while USD/JPY was at 110.29 compared to 110.40 earlier.
The US dollar index, which tracks the greenback against a basket of six major rivals, was at 95.50, compared to 95.53 ahead of the report.
Meanwhile, U.S. stocks were trading higher after the open. The Dow 30 gained 125 points or 0.71%, the S&P 500 rose 13 points or 0.63%, while the tech-heavy NASDAQ Composite traded up 24 points or 0.50%.
Elsewhere, in the commodities market, gold futures traded at $1,219.25 a troy ounce, compared to $1,219.15 ahead of the data, while crude oil traded at $49.40 a barrel from $49.30 earlier.