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Ahead Of The Bell: ISM Service Sector Index

The Associated Press

NEW YORK (AP) — Economists expect a trade group's measure of the health of the U.S. services sector to contract for the eighth straight month in May, but at the slowest pace since September.

The Institute for Supply Management's services index likely registered a 45 in May, according to analysts polled by Thomson Reuters. That would be the highest level since September, when the index was at 50 and up from 43.7 in April.

Still, any reading below 50 indicates the services sector is shrinking. Service industries such as retailers, financial services, transportation and health care make up about 70 percent of the country's economic activity.

The ISM, a Tempe, Ariz.-based trade group of purchasing executives in 18 industries, is scheduled to release the report Wednesday at 10 a.m. EDT.

The report is based on a survey of the institute's members and covers indicators such as new orders, employment and inventories.

In April, new orders jumped to 47 from 38.8 in March. Meanwhile, the ISM companion index for manufacturing on Monday showed new orders in May turned positive for the first time since November 2007. Growth in new orders for businesses are the key to ramping up production, and eventually hiring workers.

The National Association of Realtors on Tuesday said the number of Americans contracted to buy used homes posted its biggest monthly jump in April in nearly eight years. The Realtors last week said home sales rose 2.9 percent in April from the previous month to an annual rate of 4.68 million units — though still 4.6 percent below the same time last year.

The recent uptick in housing activity, especially in areas hard-hit by foreclosures such as Florida and California, is a boon to the industry's hurting brokers and real estate agents, as well as bank lenders.

Still, the country's restaurants, shops, brokers, shippers and information technology companies aren't out of the woods yet.

Retailers report May sales figures on Thursday, and analysts expect a drop in revenues.

Jewelry seller Tiffany & Co. said last week that its first-quarter profit sank 60 percent. It maintained its profit outlook for the year, however, saying it had helped offset sliding sales by cutting 10 percent of its staff, or 900 people.

The unemployment rate currently stands at a 25-year high of 8.9 percent. Economists estimate the rate climbed to 9.2 percent in May, and joblessness is expected to hit double digits later this year or early in 2010.

The economy contracted at a 5.7 percent pace in the first quarter following a 6.3 percent annualized drop in the fourth quarter of 2008. Still, analysts are hopeful the economy is on the mend and is shrinking at a much slower pace now.