The US service sector nearly stagnated in May as business activity and orders downshifted, while a measure of prices paid slid to a three-year low.

The Institute for Supply Management's overall gauge of services fell to 50.3, the weakest level this year, from 51.9 in April, according to data out Monday. The May reading was barely above 50, which separates growth and contraction, and weaker than all estimates in a Bloomberg survey of economists.

The business activity index, which parallels the ISM factory output index, fell for a fourth month to a three-year low of 51.5. Combined with softer orders, the decline indicates service providers are experiencing sluggish demand.

The new-orders gauge, a proxy of future activity, declined to 52.9 from 56.1 a month earlier. The moderation allowed service providers to whittle away at backlogs. ISM's order backlogs index shrank at the fastest pace in 14 years.

Softer demand, against a backdrop of higher interest rates and tighter credit conditions, is also helping reduce inflationary pressures. The ISM measure of prices paid for inputs dropped more than 3 points to 56.2 in May. The metric is now closer to pre-pandemic levels.

The release follows the ISM manufacturing survey, which showed the longest stretch of contracting activity since 2009. A jump in inventories at services and indications from providers that they are too high suggest further weakness in factory output.

The ISM measure of inventories at services increased to a more than two-year high, while a separate gauge of sentiment about inventory levels surged to the highest since April 2020.

Meantime, the ISM services employment index fell to 49.2, the lowest since October. While the measure suggests a slowdown in hiring, government data last week showed a larger-than-expected gain in May payrolls.

Source : Bloomberg