U.S. Services Index Unexpectedly Pulls Back Off All-Time In April

After reporting an unexpected slowdown in U.S. manufacturing growth earlier this week, the Institute for Supply Management released a report on Wednesday showing the pace of U.S. service sector growth also unexpectedly slowed in the month of April.

The ISM said its services PMI edged down to 62.7 in April after jumping to an all-time high of 63.7 in March. A reading above 50 still indicates growth in the service sector, but economists had expected the index to inch up to 64.3.

“There was slowing growth in the services sector in April; however, the rate of expansion is still strong,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee. “Respondents’ comments indicate that pent-up demand is continuing.”

“Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to affect deliveries, which has resulted in a reduction of inventories,” he added.

The unexpected dip by the headline index partly reflected a slowdown in the pace of growth in business activity, as the business activity index slumped to 62.7 in April from 69.4 in March.

New orders growth also slowed during the month, with the new orders index falling to 63.2 in April from 67.2 in March.

On the other hand, the ISM said the employment index rose to 58.8 in April from 57.2 in March, reaching its highest level since September of 2018.

The prices index also climb to 76.8 in April from 74.0 in March, indicating the fastest rate of price growth since July of 2008.

“Looking ahead, much better health conditions, reopenings, and the release of pent-up demand will allow badly-damaged services to recoup their losses at a brisk pace,” said Oren Klachkin, Lead U.S. Economist at Oxford Economics.

“Supply chain and hiring challenges within services, as well as ripple effects from the goods sector, will drag on growth,” he added. “However, these issues won’t pose a lasting drag as the economy returns to full health.”

As mentioned above, the ISM released a separate report on Monday showing growth in U.S. manufacturing activity unexpectedly slowed in the month of April.

The ISM said its manufacturing PMI slid to 60.7 in April after jumping to a more than 37-year high of 64.7 in March.

While a reading above 50 still indicates growth in manufacturing activity, economists had expected the index to inch up to 65.0.

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