FX.co ★ U.S. Service Sector Activity Contracts For First Time Since December 2022

The US service sector experienced an unexpected shrinkage in April following fifteen months of consistent growth, as revealed in a recent report from the Institute for Supply Management (ISM). The ISM reported a slip in service sector PMI, dropping to 49.4 in April from 51.4 in March. Any reading below 50 is indicative of a contraction, contrary to economists' predictions of an expected rise to 52.0.

The services sector reported its first contraction since December 2022. The contraction, as suggested by the headline index, was due in part to a significant deceleration in business activity growth. The business activity index fell to 50.9 in April from a former 57.4 in March.

Growth in new orders also slowed in comparison to the previous month, with the new orders index falling from 54.4 in March to 52.2 in April. The report also highlighted a decline in the employment index, dropping from 48.5 in March to 45.9 in April, indicating an increased contraction in employment.

However, the ISM report suggested a considerable increase in price growth, with the prices index leaping from 53.4 in March to 59.2 in April. According to Anthony Nieves, Chair of the ISM Services Business Survey Committee, feedback from survey respondents indicated an overall deceleration in business, varying by both company and sector.

Nieves also mentioned continued employment challenges, primarily associated with backfilling positions and managing labor costs. He noted that the majority of respondents cited concerns around inflation and geopolitical issues.

Earlier in the week, the ISM released a separate report revealing a minor contraction in US manufacturing activity for April. The manufacturing PMI eased to 49.2 from 50.3 in March, with a pullback in the index following a modest March expansion after sixteen consecutive months of contraction.