WASHINGTON, June 6, 2023 (BSS/AFP) - US services sector activity cooled last month to the lowest level since December, with growth in new orders slowing and employment contracting, according to survey data released on Monday.

The Institute for Supply Management (ISM) services index, measuring the health of this key sector of the economy, logged a lower-than-expected reading of 50.3 percent last month, down from April's 51.9 percent figure.

A number above 50 means the sector is still expanding, although its pace has eased in an environment of higher interest rates.

The US Federal Reserve has lifted the benchmark lending rate 10 straight times since early 2022 to cool demand, but activity in the services sector has been slower to moderate than that in the manufacturing industry.

Analysts expect this strength to peter out as consumers draw down on savings accumulated during the Covid-19 pandemic, and as the full impact of the central bank's rate hikes ripple through the economy.

"There has been a pullback in the rate of growth for the services sector," said ISM survey chair Anthony Nieves. He added that a key factor is a slowdown in employment.

"The majority of respondents indicate that business conditions are currently stable; however, there are concerns relative to the slowing economy," he said in a statement.

According to the ISM report, business activity continued to grow in May but logged a lower reading. A similar trend was seen in new orders.

The employment index, which recorded a 50.8 percent reading in April, dipped to 49.2 percent -- a reading that indicates contraction.

While hiring figures from the Labor Department last week suggested the jobs market remains hotter than hoped, the latest ISM numbers could bring some relief to policymakers.

Fed officials are due to meet next week, when they will decide if a further rate hike is necessary to cool the economy sufficiently to rein in stubborn inflation.

Some officials have indicated that they might support a pause in rate increases this month, and data indicating slowing economic activity would support that decision.

According to a separate ISM survey, the manufacturing sector -- which forms a much smaller part of the American economy -- contracted in May for a seventh straight month.