US Services PMI Declines, Revealing Slower Economic Activity

In March, economic activity within the US services sector grew at a slower pace, with the ISM Services PMI dropping to 51.2 from 55.1 in February. The reading was weaker than the market expectation of 54.5. The inflation component of the PMI survey, the Price Paid sub-index fell to 69.5 from 65.6 in February, while the New Orders sub-index experienced a sharp decline to 52.2 from 60.4, and the Employment sub-index dropped to 51.3 from 54.

Regarding this data, Anthony Nieves, Chair of the ISM Services Business Survey Committee, commented: “There has been a pullback in the rate of growth for the services sector, attributed mainly to (1) a cooling off in the new orders growth rate, (2) an employment environment that varies by industry and (3) continued improvements in capacity and logistics, a positive impact on supplier performance.” As a result of this report, the US Dollar Index (DXY) has remained in its daily range near 101.50. 

ISM non-manufacturing readings provide a snapshot of various businesses other than those within the manufacturing sectors. These are mainly based on a survey of purchasing and supply executives of service-related firms on a month-by-month basis. The March report shows that economic activity in thirteen non-manufacturing industries increased in February, with four industries (transport and warehousing, management and support services, public administration, and wholesale and trade) reporting that they had decreased.

Non-manufacturing business activity plummeted to 58.3 from 62.8 in March, growing solidly, but slowly. The New Orders Index recorded 64.9 in March, very close to and below the 65.8 figures for February. The Employment Index also declined dramatically, down 2.7% to 51.3. Lastly, the prices index dropped to 69.8 in March compared with the 71.8 in February.

The March Services PMI report details the following observations from respondents:

– Accommodation & Food Services: “Overall, our business has increased but slowed down in the past quarter.” 
– Finance & Insurance: “Changing rates are affecting future projects and development plans. Very uncertain at this time.” 
– Real Estate, Rental & Leasing: “The market is strong. Demand is greater than current inventory.” 
– Transportation & Warehousing: “Many customers [are] beginning to seek alternate sources due to increased lead times and increased costs for the current supply chain.” 
– Professional, Scientific & Technical Services: “Business is up slightly, possibly due to an increase in our marketing efforts.”

Despite this survey data indicating a shrinking pace of growth, other indicators signpost to a more robust expansion continuing to take place in the US. For instance, the Consumer Confidence Index reached its highest level within a 17-year period. Although certain elements of the US economy seem to be heading in the right direction, small businesses are still experiencing difficulties, such as the FOMC’s decision to raise interest rates.

The recent uptick in DXY was triggered by Chairman Jerome Powell, whose recent economic outlook included optimism for potential growth within smaller businesses. However, based on existing data, it is not guaranteed that shared prosperity will generatively promote a more wholesome recovery for the US economy.


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