Activity in the key U.S. services expanded at a slower rate in April, while a gauge of prices paid by these businesses held steady but is anticipated to speed up as an energy shock from the Iran war trickles through the wider economy.
The U.S. non-manufacturing purchasing managers’ index from the Institute for Supply Management stood at 53.6 last month, compared to 54.0 in March and economists’ expectations of 53.7.
A reading above 50 denotes expansion. Making up a bulk of overall activity, the services sector is closely monitored as a major economic driver.
Respondents from a variety of industries to the ISM’s survey underlined headwinds from the more than two-month old conflict in the Middle East. In health care and social assistance, geopolitical concerns remain a central worry in the near-term, albeit with minimal impact on operations so far, while respondents in public administration and professional services said they are adopting a cautious stance until more clarity emerges around the effects of the fighting.
An index of new orders, in particular, slumped to 53.5 from 60.6 in March. Meanwhile, a measure of prices paid by services companies held at 70.7, below expectations of 73.7.
"[T]he sharp drop in new orders and continued elevated level of inflation makes this a slightly negative reading on the economy," analysts at Vital Knowledge said in a note.
A spike in oil prices caused by the closure of the Strait of Hormuz -- a narrow waterway off of Iran’s southern coast through which a fifth of the world’s crude passes -- has sparked fears of a fresh bout of inflation in the U.S. and elsewhere.
Several respondents said they "have yet to see petroleum price increases impacting petroleum-related products," said Steve Miller, Chair of the ISM Services Business Survey Committee, in a statement.
But Miller warned that ISM expects to "see continued elevated readings for the Prices Index for several months — regardless of when the conflict in Iran ends — due to these costs working their ways through global supply chains.”
Separately, a metric of job openings which is used as a proxy for labor demand inched down marginally in March.
The Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics showed that there were 6.866 million open roles during the month, versus a prior level of 6.922 million and forecasts of 6.860 million.
Hires increased by 655,000 to 5.554 million, while the hires rate ticked up to 3.5% from 3.1% in February. But the rate of layoffs and discharges also rose to 1.2% from 1.1%.
More job market data is due to be released in the coming days, including the all-important non-farm payrolls report for April. These figures could provide some insight into how a so-far resilient labor picture has evolved as the Iran conflict threatens to both drive up prices and dent household and business spending.
Inflation and jobs are particularly crucial to the Federal Reserve, which is tasked with calibrating monetary policy to help stabilize price pressures and maintain full employment.
Source: Investing