U.S. services sector activity continued to expand in April, although at a pace slightly below expectations, the results of two separate surveys released Tuesday showed. Separately, a Labor Department report showed that job openings in the U.S. remained largely unchanged in March.
Iran Worry Persists but Activity Rises
The Institute of Supply Management’s (ISM) services sector purchasing managers’ index (PMI) edged down 0.4 percentage points (ppt) to 53.6 in April from March’s 54, while economists expected a more modest decline to 53.7.
The business activity index rose 2 ppt to 55.9, while the new orders index slipped 7.1 ppt to 60.6 and the employment index (48) contracted for a second month in a row, although rising 2.8 ppt. The supplier deliveries index (which is inverted: a higher reading suggests slower deliveries) edged up 0.6 ppt to 56.8. The prices paid index held steady at a nearly four-year high of 70.7.
Inventories, imports and backlog of orders, although lower, remained in expansion territory at 53.1, 54.7 and 53, respectively, while the new export orders climbed 1.4 ppt to 52.1.
ISM noted that 14 industries reported growth, one more than in the previous month, while three reported contraction.
Respondents expressed worries about interest rates, inflation, and oil supply issues impacting the housing market. “The war has caused many banking customers to back off equipment purchases and other spending. Just as the recovery was under way, it is now turning off. Not a good thing,” some commented. They also remarked on 7%-9% cost escalation, driven by the local political environment.
S&P Global’s final service sector PMI business activity index rose to 51 in April from 49.8 in March. Economists expected a reading of 51.3 for April. New work inflows decline, marking the first demand reduction since April 2024, with the firm attributing the weakness to the negative impact of the war in the Middle East and higher inflationary pressures.
The survey showed a steep rise in selling prices due to higher fuel and gas, plus increased labor-related costs drove operating expenses. Panelists commented on a “rising degree of uncertainty stemming from high inflation and the war in the Middle East.” They also mentioned tariffs as a source of instability, especially with respect ito international demand.
The firm noted that new export business declined solidly in April to extend the current sequence to five months.
On a positive note, employment rose slightly in April following a contraction in March. Expectations about the year ahead were again positive.
Job Market Stagnant
The Job Openings and Labor Turnover Survey (JOLTS) showed that the number of job openings were nearly unchanged at 6.866 million in March, slightly down from 6.922 million in February, but slightly higher than the consensus estimate of 6.860 million.
Professional and business services saw a decline of 318,000 openings, while finance and insurance added 98,000.
Hiring rose by 655,000 to 5.6 million, while the hiring rate increased to 3.5%.
March’s JOLTS data reinforces the view of a gradually cooling labor market rather than a sharp deterioration, with job openings broadly stable and hiring activity showing some improvement despite broader economic and geopolitical uncertainty.
Investors will now look to Friday’s non-farm payrolls report for clearer signs on whether labor demand is softening enough to support expectations for Federal Reserve rate cuts later this year.
