Services Survey Show Growth In April But Export Demand Is “Reigniting Inflationary Pressures”

Despite hard data disappointment, soft survey data for Manufacturing showed an improvement in April and analysts expected the Services sector to do the same with modest gains.

• S&P Global US Services PMI printed 53.6 in April, up from 52.6 in March (but down from the flash print of 53.7)

• ISM Services printed 51.9 in April, up from 51.2 in March, better than the 51.8 expected

Source: Bloomberg

Under the hood, ISM data shows a rebound in export orders, slowing in employment, and prices sticky (up from last month marginally)

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“April saw an encouraging acceleration of service sector growth which, combined with indications of a renewed upturn in manufacturing, suggests the economy has regained some momentum at the start of the second quarter.

“Companies have reported an improvement in confidence compared to the gloomier picture seen late last year, with service sector companies also benefiting from a post-pandemic tailwind of spending shifting from goods to services, notably among consumers.

“However, there are indications that resurgent demand for services is reigniting inflationary pressures. Average rates charged for services are now rising at the sharpest rate for eight months, as firms report a greater ability to pass increased costs on to customers. This upturn in the service sector selling price gauge hints at a concerningly stubborn stickiness of core inflation.

Finally, Williamson pours some serious cold water on the hope narrative: 

“Much of course depends on whether this recovery in demand can persist. Headwinds from higher interest rates and the increased costs of living, combined with the winding down of household savings, suggest the upturn could lose steam in the months ahead.”

The S&P Global US Composite PMI Output Index posted 53.4 in April, up from 52.3 in March, to signal a solid upturn in private sector business activity.

The faster expansion in output reflected quicker increases in activity at manufacturing and service sector firms. The rate of growth was the sharpest since May 2022.

Price pressures regained momentum in April, as input costs and output charges rose at sharper rates. The acceleration in inflation was broad based, with service sector firms registering the faster upticks in both costs and charges.