US services PMI drops to 51.7 in March, with prices on the rise, says S&P Global

The purchasing managers index (PMI) for the services sector in the United States fell from 52.3 in February to 51.7 in March, S&P Global reported this Wednesday (3). Thus, although it fell to the lowest level in three months, the indicator continued for the 14th month in a row above the level of 50.0, which separates the contraction from the expansion of activity.

The composite PMI, which aggregates industry data, was 52.1 in March, slightly below the 52.5 in February.

According to the survey, companies in the service sector continued to increase their staffing levels, in a context of greater optimism regarding business prospects for next year.

Both production factor costs and product prices rose sharply in March, often as a result of rising wages.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a note that combined with an acceleration in growth in the industrial sector, the latest services PMI data points to an increase in GDP at an annualized rate of approximately 2% in the first three months of the year.

“Confidence in the outlook for next year has also increased, which should help sustain solid growth in the second quarter,” he said.

However, he warned that the recovery is being accompanied by new upward pressures on prices, with wage growth in particular driving up costs.

“The increase in the prices of raw materials and fuel is also increasing charges, which, in turn, is increasing the average selling prices of goods and services”, he explained.

Williamson also said that both manufacturers and service providers are seeing intensifying rates of cost and sales price inflation, “which will likely be reflected in higher consumer price inflation in the near term.”