Services Sector PMI at 49.4% in April – First Contraction in 16-Month Period

Economic activity in the services sector contracted in April for the first time since December 2022, ending a period of 15 consecutive months of growth, according to the latest ISM Report On Business. The services PMI registered 49.4%, indicating sector expansion in 45 of the previous 47 months.

The report was issued by Anthony Nieves, chair of the Institute for Supply Management (ISM) services business survey committee.

“In April, the Services PMI registered 49.4%, 2 percentage points lower than March’s reading of 51.4%. The composite index indicated contraction in April after 15 consecutive months of growth since a reading of 49% in December 2022, the first contraction since May 2020 (45.4%),” Nieves said. “The Business Activity Index registered 50.9% in April, which is 6.5 percentage points lower than the 57.4% recorded in March. The New Orders Index expanded in April for the 16th consecutive month after contracting in December 2022 for the first time since May 2020; the figure of 52.2% is 2.2 percentage points lower than the March reading of 54.4%. The Employment Index contracted for the fourth time in five months with a reading of 45.9%, a 2.6-percentage point decrease compared to the 48.5% recorded in March.”

“The Supplier Deliveries Index registered 48.5%, 3.1 percentage points higher than the 45.4% recorded in March,” Nieves said. “The index contracted for the third straight month — indicating that supplier delivery performance was faster — after one month in expansion (or ‘slower’) territory in January. (Supplier Deliveries is the only ISM Report On Business index that is inversed; a reading of above 50% indicates slower deliveries, which is typical as the economy improves and customer demand increases.)”

“The Prices Index registered 59.2% in April, a 5.8-percentage point increase from March’s reading of 53.4%,” Nieves said. “The Inventories Index grew in April after four previous months of contraction, registering 53.7%, an increase of 8.1 percentage points from March’s figure of 45.6%. The Inventory Sentiment Index (62.9%, up 7.2 percentage points from March’s reading of 55.7%) expanded for the 12th consecutive month. The Backlog of Orders Index grew in April after contracting in March, registering 51.1%, a 6.3-percentage point increase compared to the March reading of 44.8%.”

“12 industries reported growth in April. The Services PMI — through 15 consecutive months of growth after a single month of contraction in December 2022 and a prior 30-month period of expansion — had been indicating sustained growth for the sector. But, the reading of under 50% in April reflects month-over-month contraction,” Nieves said. “The decline in the composite index in April is a result of lower business activity, slower new orders growth, faster supplier deliveries and the continued contraction in employment. Survey respondents indicated that overall business is generally slowing, with rates varying by company and industry. Employment challenges continue to be primarily due to difficulties in backfilling positions and/or controlling labor expenses. The majority of respondents indicate that inflation and geopolitical issues remain concerns.”

The 12 services industries reporting growth in April — listed in order — are:

  • Accommodation and food services
  • Construction
  • Agriculture, forestry, fishing and hunting
  • Utilities
  • Mining
  • Management of companies and support services
  • Educational services
  • Retail trade
  • Finance and insurance
  • Health care and social assistance
  • Public administration
  • Wholesale trade

The six industries reporting a decrease in the month of April — listed in order — are:

  • Other services
  • Information
  • Arts, entertainment and recreation
  • Real estate, rental and leasing
  • Professional, scientific and technical services
  • Transportation and warehousing

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