Service sector

US service sector slows slightly in April – ISM survey

WASHINGTON, May 5 (Reuters) – U.S. service-sector activity grew at a slightly slower pace in April, likely held back by shortages of inputs amid booming demand fueled by massive fiscal stimulus and a rapidly improving public health environment.

The Institute for Supply Management (ISM) said on Wednesday its non-manufacturing activity index fell to 62.7 last month from 63.7 in March, the highest on record.

A value above 50 indicates growth in the service sector, which accounts for more than two-thirds of US economic activity. Economists polled by Reuters had forecast the index to rise to 64.3 in April.

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The findings mirror the ISM manufacturing survey released on Monday showing bottlenecks in the supply chain limiting factory activity in April. The economy is experiencing a boom in demand, thanks to the White House’s massive $1.9 trillion pandemic relief package and the expansion of the COVID-19 vaccination program to all American adults .

Federal Reserve Chairman Jerome Powell said last week that the US central bank expects bottlenecks to be resolved as workers and businesses adjust, adding “we consider them as not calling for a change in monetary policy”. The Fed has cut its benchmark interest rate to near zero and is pumping money into the economy through bond purchases.

Business inventories fell in the first quarter as consumer spending soared. The economy grew at an annualized rate of 6.4% in the January-March quarter after growing at a 4.3% pace in the fourth quarter.

Most economists expect double-digit GDP growth this quarter, which would position the economy for growth of at least 7%, which would be the fastest since 1984. The economy has contracted 3.5% in 2020, its worst performance in 74 years.

Demand for services could increase in the coming months as vaccinated Americans go on vacations and visit theaters, among other activities. Many states, including New York, New Jersey and Connecticut, are lifting most of their coronavirus capacity restrictions on businesses.

The ISM survey’s measure of new orders for the services industry fell to 63.2 in April from an all-time high of 67.2 in March. The backlog of uncompleted work has increased sharply, underscoring the impact of supply constraints.

Inventories contracted and businesses increased their imports. They continued to pay more for inputs. The survey’s measure of prices paid by service industries rose to 76.8, the highest reading since July 2008, from 74.0 in March.

Its service industry employment measure rose to 58.8 from 57.2 in March. This bolsters expectations for another month of blistering job growth in April. Nonfarm payrolls likely rose by 978,000 jobs last month after rising 916,000 in March, according to a Reuters survey of economists.

The Department of Labor will release the April jobs report on Friday.

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Reporting by Lucia Mutikani Editing by Chizu Nomiyama

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