Service sector grew at faster pace in May

The service sector’s growth picked up pace in May on increases in hiring and new orders, a strong signal that the economy is strengthening after a downturn early in the year.

The Institute for Supply Management's index rose to 56.3 in May from 55.2 in April.

Readings above 50 signal expansion.

The index is a survey of a wide variety of businesses — the sector employs 90 percent of all workers, including those at restaurants, hotels and retailers.

The economy contracted at a 1 percent annual rate in the first three months of the year, but economists are expecting an acceleration of upward of 4 percent in the April-June period.

The May jobs report is set for release on Friday with estimates around 210,000, which would fall below the 288,000 created in April.

A separate report on Wednesday by ADP said that employers added 179,000 jobs last month, down from the 215,000 in April.

In that report, service-sector employers added 150,000 jobs in May, fewer than the 194,000 in April.

New orders were up 2.3 points to 60.5, the fifth straight month of increases and the best showing since January 2011, the ISM said in Wednesday's report. 

Production rose to 62.1 up from 60.9, while hiring increased to 52.4 from 51.3.

In a separate report on Monday, the ISM showed that the manufacturing sector expanded at a faster rate of 55.4, another positive signal for second-quarter growth.