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, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The Services PMI® registered 49.4 percent; it indicated sector expansion in 45 of the previous 47 months.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In April, the Services PMI® registered 49.4 percent, 2 percentage points lower than March’s reading of 51.4 percent. The composite index indicated contraction in April after 15 consecutive months of growth since a reading of 49 percent in December 2022, the first contraction since May 2020 (45.4 percent). The Business Activity Index registered 50.9 percent in April, which is 6.5 percentage points lower than the 57.4 percent 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 percent is 2.2 percentage points lower than the March reading of 54.4 percent. The Employment Index contracted for the fourth time in five months with a reading of 45.9 percent, a 2.6-percentage point decrease compared to the 48.5 percent recorded in March.

“The Supplier Deliveries Index registered 48.5 percent, 3.1 percentage points higher than the 45.4 percent recorded in March. 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 percent indicates slower deliveries, which is typical as the economy improves and customer demand increases.)

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

“Twelve 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 percent in April reflects month-over-month contraction.”

Nieves continues, “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.”

INDUSTRY PERFORMANCE

The 12 services industries reporting growth in April — listed in order — are: Accommodation & Food Services; Construction; Agriculture, Forestry, Fishing & Hunting; Utilities; Mining; Management of Companies & Support Services; Educational Services; Retail Trade; Finance & Insurance; Health Care & Social Assistance; Public Administration; and Wholesale Trade. The six industries reporting a decrease in the month of April — listed in order — are: Other Services; Information; Arts, Entertainment & Recreation; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; and Transportation & Warehousing.

WHAT RESPONDENTS ARE SAYING

“Steady improvement toward lower costs in food and beverages; however, avian bird flu may affect pricing moving forward. Already seeing increases in chicken and eggs. In the technology space, prices are not decreasing but holding steady.” [Accommodation & Food Services]
“Movie production is recovering, which should increase volume in movie theaters in the second half of 2024.” [Arts, Entertainment & Recreation]
“Although it varies by global region, we’re starting to see market softening in terms of price and lead time stability. That bidders are providing reasonable bid validities is an indication that much of the supply chain is coming into supply and demand equilibrium. Electrical equipment remains the outlier.” [Construction]
“Inflation is raising our unit cost on products and services when compared to last year’s expenditures.” [Public Administration]
“Continue to be challenged with inflationary pressure through labor and service cost increases, but we are working hard at finding utilization savings to offset where possible.” [Health Care & Social Assistance]
“Business remains soft.” [Information]
“We are still experiencing supply chain challenges with increased costs of raw materials, particularly chemicals and their containers, as well as higher U.S. and overseas freight transportation costs. A containers shortage has increased costs and slowed down the supply chain.” [Management of Companies & Support Services]
“Steady demand has been favorable during this traditionally slower season. Pricing is stable and the supply chain is strong. Employee recruitment and retention has been a challenge in some areas; however, the situation isn’t critical.” [Retail Trade]
“Construction, administrative and technical/scientific labor are in high demand. Long lead times for brass plumbing fittings and electrical equipment and components.” [Utilities]
“The overall market has definitely slowed down. Our business is up year over year and month over month; based on our advanced analytics, we know that growth is coming from new customers. This means we are taking market share from our competitors.” [Wholesale Trade]