Growth in U.S. Service Industries Cools for a Second Month

(Bloomberg) -- Growth in U.S. service industries cooled in March for a second month as orders settled back from the fastest pace in more than 12 years, a survey from the Institute for Supply Management showed Wednesday.

Key Takeaways

Even with the main index's decline last month, service industries continued to expand at a hearty pace. An increase in order backlogs and slower delivery times, as measured by the purchasing managers' group, encouraged the services sector to step up hiring to meet demand.

The results are similar to the group's data earlier this week that showed factories expanded at a slightly slower pace as orders and production growth cooled. Nonetheless, both reports indicate the economy remains on solid footing, and the services gauge's three-month average of 59.4 is the best for a quarter in records back to 1997, according to data compiled by Bloomberg.

Fifteen industries reported growth in March, led by mining as well as transportation and warehousing. The two reporting contractions were educational services and information. The services index covers about 90 percent of the economy and spans industries such as retail, utilities, health care and construction.

A tight job market and elevated confidence are supporting demand for services, even as rising input prices threaten companies' profit margins. In addition, a brewing trade war between the U.S. and China represents a possible headwind to the outlook. A company in the construction industry said tariffs on steel and aluminum have made long-term planning “incredibly difficult” as distributors are sometimes committing to prices for only seven days instead of 30, according to the ISM report.

On the whole, though, companies haven't seen inflation resulting from the tariffs, even as the actions begin to have a psychological impact on businesses, Anthony Nieves, chair of the ISM non-manufacturing survey committee, said on a conference call.

Other Details

• Index of supplier deliveries rose to 58.5, the highest since November 2005, from 55.5; readings above 50 indicate slower deliveries
• Measure of order backlogs climbed to 56.5, strongest reading since May, from 56
• Gauge of prices paid increased to 61.5 from 61
• Export orders measure fell to 58 from 59.5

--With assistance from Alexandre Tanzi

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net.

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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