US Services Industry Growth Slows in March
Slowing Growth in Services Sector
The US services industry experienced a further slowdown in growth in March, with a measure of prices paid by businesses for inputs dropping to a four-year low. This decline is a positive sign for the inflation outlook, indicating a potential easing of inflationary pressures.
ISM Non-Manufacturing PMI
The Institute for Supply Management (ISM) reported that its non-manufacturing PMI fell to 51.4 in March from 52.6 in February. This marks the second consecutive monthly decline in the index since January’s rebound. Despite this decrease, the index remains above 50, indicating continued growth in the services industry, which plays a significant role in the US economy.
Impact of Interest Rate Hikes
Growth in the services sector has been impacted by the 525 basis points worth of interest rate hikes implemented by the Federal Reserve since March 2022. The central bank is expected to begin cutting rates this year, with the timing dependent on inflation trends.
Services Inflation and Business Activity
Services play a crucial role in driving inflation through increased wages. While a measure of new orders received by services businesses declined in March, production remained strong. However, the survey’s measure of prices paid for inputs by businesses dropped to its lowest level since March 2020, indicating a slowdown in services inflation.
Employment and Economic Outlook
Employment levels in the services sector have seen a slight increase, though they are likely constrained by worker shortages and layoffs. Government data indicates a slight decline in job openings compared to the previous month. The upcoming employment report for March is expected to show a moderate increase in nonfarm payrolls, with the unemployment rate remaining steady and wage growth cooling slightly.
