NEW YORK | Tue Jun 5, 2012 12:10pm EDT (Reuters) - The pace of growth in the vast services sector edged up in May driven by gains in new orders, a welcome comfort after recent disappointing economic data.
The Institute for Supply Management (ISM) said on Tuesday its services index edged up to 53.7 from 53.5 in April; economists had expected the index to hold steady at April's level.
A reading above 50 indicates expansion in the sector, which accounts for about two-thirds of economic activity.
Although the data offered a positive note after other recent signs suggesting the recovery is losing traction, the index was still well off the level of 57.3 seen in February.
"Overall, the data held up but is still at a low level, and I do not think this counters the significantly weak data we have been seeing," said Tom Porcelli, chief economist at RBC Capital Markets in New York.
The survey's forward-looking new orders component rose to a reading of 55.5 from 53.5, while the measure of prices paid declined to the lowest level since July 2009, at 49.8 from 53.6.
The decline in prices was attributed to lower fuel costs, said Anthony Nieves, chair of the ISM non-manufacturing index business survey committee.
ISM's report on the manufacturing sector last week included a similar improvement in new orders, suggesting that signs of a softening pace of output and employment growth do not reflect a significant decline in demand, Peter Newland, a senior economist at Barclays, wrote in a note.
But the employment component fell to its lowest level since last November, adding to signs that job growth is slowing, after last week's disappointing employment report. The index fell to 50.8 from 54.2.
The Labor Department's jobs report for May, which showed employers added a slim 69,000 jobs, has fed speculation the Federal Reserve could decide to act to further bolster the economy, though the tone of the ISM surveys and the gains in new orders "should blur the debate on whether further policy easing is currently necessary," said Newland.
The Fed's policy-setting Federal Open Market Committee will next meet on June 19 and 20.
The service sector's modest advance was a relief to the stock market. Wall Street was up about 0.4 percent in late morning trading.
"The market is very fearful of the economic data," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "A slightly better-than-expected services number, which makes up the majority of the economy, is a sigh of relief in the face of a lot of bearishness."
Separate data released on Tuesday was more encouraging, with a rise in home prices in April seen as a fresh sign of stabilization for the troubled housing market.
Data analysis firm CoreLogic said its home price index rose 2.2 percent in April from the previous month and gained 1.1 percent from the year before.
Excluding sales of distressed properties, which are typically sold at a significant discount, prices jumped 2.6 percent for the month and were up 1.9 percent on a yearly basis.
