U.S. Service Industries Grow at Slowest Pace in Five Months

(Bloomberg) -- American service companies expanded in March at the slowest pace in five months, adding to signs of tepid economic growth in the first quarter, a survey by the Institute for Supply Management showed on Wednesday.

Key Points

• ISM'S non-manufacturing index eased to 55.2 (forecast was 57) from February's 57.6, which was the highest since 2015; readings above 50 indicate growth
• Measure of business activity fell to 58.9 from 63.6
• Index of services employment dropped to 51.6 last month, the weakest since August, from 55.2 a month earlier

Big Picture

A disappointing start to the year for Americans' spending could be to blame for the drop in the ISM index, as softer consumption in the first quarter has been a common theme in the last three years.

While the figure remains above its 2016 average, the decline represents some easing following the big gains in so-called soft data, such as surveys and confidence indicators, since Donald Trump's election. Services account for about 90 percent of the economy and span industries such as utilities, retailing, health care, and construction.

The decline in the services employment gauge is also a potentially negative indicator for Friday's payrolls report, which is forecast to show the U.S. added 175,000 jobs added in March following February's gain of 235,000. To be sure, figures from ADP Research Institute showed private payrolls climbed by 263,000 in March, the most since December 2014.

A separate index on manufacturing eased in March to 57.2, according to a report released Monday by the Tempe, Arizona-based ISM. That still represents a robust pace of growth for America's factories and demonstrates momentum in an industry that struggled for the better part of the last two years.

Survey Takeaway

“We had this euphoria after the election that was reflected by our respondents in their comments and the numbers as well, and then there's this uncertainty that we're experiencing right now which pairs with this cautiousness because the comments throughout talk about trade, immigration, health care,” Anthony Nieves, chairman of the ISM non-manufacturing survey, said on a conference call with reporters. “We're seeing a little bit of waning only due to that uncertainty.”

Other Details

• 15 industries, led by management of companies, reported growth in March, while three contracted
• Non-manufacturing measure of orders declined to 58.9 from 61.2
• Prices-paid index fell by 4.2 points to 53.5, the biggest drop in four years
• The gauge of backlogs decreased to 53 from 54
• Export orders grew at faster pace, with gauge rising to 62.5, the strongest reading since May 2007, from 57
• Construction industry reported a short supply of labor for a 12th straight month

To contact the reporter on this story: Patricia Laya in Washington at playa2@bloomberg.net.

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