U.S. ISM Services Index (April 2023)

ISM shows Steady-Eddie services sector in April

• The ISM Services PMI index rose slightly, in line with expectations in April to 51.9 percent, up from 51.2 in March. That marks the fourth consecutive month of expansion in the services sector.
• However, the business activity sub-index cooled to 52, down from 55.4 in March. 
• The new orders rose to 56.1, recovering almost half of the weakening in March (52.2). However, pulling back the lens, new orders remain below their peak 60+ readings in 2021. 
• The prices paid component was basically flat, at 59.6 in April, holding on to the substantial improvement seen in March.  After a meaningful increase in 2021, the prices paid index is back in line with mid-2020 readings.
• The employment sub-component fell slightly to 50.8 in April from 51.3 in March, but hung onto expansionary territory. 
• Fourteen out of 18 industries expanded in April, up one from March.   

Key Implications

• According to the ISM Services PMI there was a slight uptick in the growth rate of the services sector in April. It was due mostly to the increase in new orders, and ongoing improvement in both capacity and supply logistics. However, some respondents are "wary of potential headwinds associated with inflation and an economic slowdown." Looking at overall activity, the slowing trend that has been ongoing since 2021 remains intact.  
• This indicator plays a very quiet second fiddle to the FOMC rate decision out at 2pm today. But, it underscores a challenge for the Fed in wrestling inflation back down to the 2% target – the resilience of the services sector. Slowing is gradually occurring, but the Fed needs to see the services sector, and then services inflation cool further, before they can ease up on their hawkish monetary policy stance.     

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