Service sector

US service sector slows; the measurement of input prices at an all-time high – ISM survey

Customers drink and dine al fresco at ‘Martha’ restaurant in Philadelphia, Pennsylvania, U.S., August 7, 2021. REUTERS/Hannah Beier

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WASHINGTON, May 4 (Reuters) – Growth in the U.S. services industry unexpectedly slowed in April, with employment contracting for the second time this year, while a measure of input prices hit a low. record.

The Institute for Supply Management said on Wednesday its non-manufacturing activity index fell to 57.1 last month from 58.3 in March. Economists polled by Reuters had expected the non-manufacturing index to change little at 58.5.

A value above 50 indicates an expansion of the service sector, which accounts for more than two-thirds of US economic activity. The surprise slowdown could reflect ongoing supply constraints, which have been compounded by new COVID-19 lockdowns in China and Russia’s war on Ukraine.

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On the heels of an ISM survey on Monday showing manufacturing growth at its slowest pace in more than a year and a half in April, the slowdown in the services industry could be a potential red flag for the economy. ‘economy.

The economy contracted at an annualized rate of 1.4% in the first quarter, although this was largely due to a record trade deficit. Domestic demand remained strong, with consumer spending increasing and business investment in equipment accelerating.

The ISM measure of new orders received by service businesses fell to 54.6 from 60.1 in March. The moderation came despite the return of spending to services instead of goods. Order books also grew at a slower pace compared to March and exports fell.

Its service industry employment indicator fell to 49.5, the second contraction this year, after rebounding to 54.0 in March. The decline likely reflects ongoing labor shortages. The Labor Department announced Tuesday that there were a record 11.5 million job openings at the end of March.

The contraction, coupled with a slowdown in factory employment growth last month, could temper expectations of strong job creation in April. Non-farm payrolls likely rose by 394,000 jobs last month after rising by 431,000 in March, according to a Reuters survey of economists.

The ISM survey’s supplier shipments measure rose to 65.1 from 63.4 in March. A reading above 50% indicates slower deliveries. As a result, services inflation accelerated. A measure of prices paid by service industries for inputs rose to an all-time high of 84.6 from 83.8 in March.

The Federal Reserve is expected to raise interest rates by half a percentage point later on Wednesday and is expected to begin trimming its holdings soon. The US central bank raised its key rate by 25 basis points in March.

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Reporting by Lucia Mutikani Editing by Chizu Nomiyama

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