The U.S. services sector contracted in March, while a measure of the prices businesses paid for inputs jumped, in a worrying sign for the inflation outlook.
The Institute for Supply Management (ISM) said on Friday its non-manufacturing PMI fell to 49.4 last month from 51.4 in March, the lowest reading since December 2022.
A value above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy. The PMI index confirms that the economy is starting to run out of steam after experiencing a sustained pace of growth.
Economists polled by Reuters had forecast the index rising to 52.0 in April.
The slowdown in economic growth comes after interest rate hikes of 525 basis points by the Federal Reserve since March 2022, intended to tamp down high inflation.
The U.S. central bank was expected to begin cutting interest rates this year, but doubts now persist as progress in bringing inflation back to its 2% target is slow. A measure of new orders received by service companies fell to 52.2 last month from 54.4 in March, the lowest figure since last September. Output also fell, with an indicator of business activity falling to 50.9 from 57.4 the previous month, to levels last seen at the start of the COVID-19 pandemic in May 2020.
Despite the slowdown in demand, services inflation appears to have resumed. The survey’s measure of prices paid for inputs by businesses jumped to 59.2 from 53.4 in March. Data last week showed services inflation accelerated in March.
The services sector employment measure fell to 45.9 from 48.5 in March. Government data showed on Wednesday that the labor market continues to gradually cool, with job openings falling to a three-year low in March and the number of people leaving their jobs falling. There were 1.32 job offers for every unemployed person in March, up from 1.36 in February.
The April jobs report, released Friday, showed that nonfarm payrolls increased by 175,000 last month, after increasing by 315,000 in March. The unemployment rate rose slightly to 3.9% and annual wage growth slowed to 3.9% from 4.1% in March. (Reporting by Lindsay Dunsmuir; Writing by Chizu Nomiyama)
