U.S. Services Growth Eases on Softer Employment, New Orders

(Bloomberg) -- Growth at U.S. service providers eased in April while cost pressures worsened, highlighting how decades-high inflation and an ongoing struggle to hire and retain workers is weighing on the sector.

The Institute for Supply Management's gauge of services decreased to 57.1 last month from 58.3 in March, according to data out Wednesday. Readings above 50 signal expansion. The median estimate in a Bloomberg survey of economists was for a slight improvement to 58.5.

An index of prices paid by firms for materials and services jumped to a record 84.6 in April, pointing to persistent upward pressure on U.S. inflation. Service providers, which often operate on relatively thin margins, will likely pass the ballooning costs through to customers.

“Business activity remains strong; however, high inflation, capacity constraints and logistical challenges are impediments,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.

Seventeen services industries reported growth last month, led by construction, utilities and management of companies and support services.

Amid high prices, ISM's gauge of new orders growth pulled back to softest pace since February of last year. Even so, other measures point to solid consumer demand. Business activity rose to a three-month high, and the group's measure of imports expanded.

Services Employment

Meantime, employment activity contracted for the second time in three months. The measure, which fell to 49.5 in April from 54, underscores the ongoing challenge of hiring enough people to meet demand.

Separate data Wednesday from the ADP Research Institute showed employment declined last month at small businesses and restrained an overall increase in private hiring.

While many service providers have increased pay to attract and retain employees, competition remains fierce for workers. Nationwide, job vacancies and quits are at record highs.

Select ISM Industry Comments
“Pricing pressures and product availability issues continue to be extremely problematic.” - Accommodation & Food Services
“While relatively low from a historical perspective, the new rates — combined with historically high home prices — will temper new home demand at some point over the next 12 months.” - Construction
“Overall business has softened.” - Information
“Business remains strong, only dampened by shortages in labor, increased material costs and lengthy lead times.” - Management of Companies & Support Services
“Talent shortages continue to make it difficult to get work done at companies across many industry sectors. Light industrial labor is in high demand, but supply gaps still exist. Wages continue to rise in nearly all labor categories.” - Professional, Scientific & Technical Services
“Inflation, supply chain issues and access to qualified workers continue to be issues.” - Public Administration
“Continued delays due to supply chain logistics issues; increased pricing across the board.” - Retail Trade

Government data out Friday is anticipated to show U.S. employers added 385,000 jobs in April.

The report also showed growth in order backlogs decelerated, and inventories improved. The inventory gauge rose to the highest in over a year last month.