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The U.S. services sector grew only modestly in April, holding back business activity at its slowest pace in nearly three years.
Data on Wednesday showed that the Institute for Supply Management’s (ISM) services sector index edged up to 51.9 in April from 51.2 in March. An index above 50 indicates growth. A measure of prices paid was near its lowest level since 2020.
A gauge of business activity fell 3.4 points to 52, still pointing to growth, but at the slowest pace since May 2020. A gauge corresponding to the ISM factory production index fell for the third straight month, reflecting weaker demand for services.
Considering that the latest ISM report showed that U.S. manufacturing activity shrank for the sixth consecutive month in April, the service sector data highlighted that the economy is still struggling to gain growth momentum amid rising interest rates and persistently high inflation.
A bright spot in the services report was a measure of new orders that picked up almost 4 points to 56.1, suggesting continued growth in demand, albeit slowly.
Fourteen services subsectors posted gains last month, led by entertainment and leisure, other services, real estate, and lodging and food services. Three sub-sectors fell.
“A majority of respondents were optimistic about the business environment overall, with some cautious about potential headwinds related to inflation and a slowing economy,” Anthony Nieves, chairman of the ISM’s services survey committee, said in a statement.
While the ISM payment price gauge edged up in April, it remained near its lowest level since July 2020. The indicator was at 59.6, indicating that inflationary pressures are easing.
The report also showed that hiring by service providers slowed further in April. The employment indicator slipped to 50.8, pointing to modest gains in employment.
The U.S. government’s monthly employment report is due on Friday. The report is expected to show a reduction in employer hiring. Economists also expect the unemployment rate to pick up slightly from record lows.
A measure of inventories at service providers fell back below 50, indicating a decline in inventories. Another indicator showed that respondents believed their inventories were at moderately low levels. Both indicators showed that the services sector was making progress in addressing excess inventory.
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