Growth in the U.S. services sector slowed further in March, while a measure of prices paid by companies for inputs fell to the lowest level in four years, boding well for the inflation outlook.
The Institute for Supply Management (ISM) reported on Wednesday that its non-manufacturing Purchasing Managers’ Index (PMI) fell from 52.6 in February to 51.4 last month. This was the index’s second consecutive monthly decline since a rebound in January.
A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy. Economists polled by Reuters predicted the index would rise to 52.7 in March.
The PMI remains consistent with an economy that continues to expand, albeit at a moderate pace.
Growth is slowing following the Federal Reserve’s 5.25 percentage point interest rate hike since March 2022. The U.S. central bank is expected to begin cutting rates this year, but the timing will depend on how inflation behaves.
Services are the main driver of inflation, through higher wages.
A measure of new orders received by service companies fell to 54.4 last month from 56.1 in February. Production remained strong, with an indicator of business activity rising to 57.4 from 57.2 in the previous month.
As demand slowed, so did services inflation. The survey’s measure of prices paid by companies for inputs fell to 53.4, the lowest reading since March 2020, compared with 58.6 in February. Data from last week showed that services inflation, excluding energy and housing, cooled considerably in February, after accelerating in January.
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