Like its manufacturing counterpart, ISM services missed expectations for April.
At 62.7, the headline was still hot, but fell short of the 64.1 consensus expected. The forecast range was 60 to 66.
In March, the gauge hit a record high. “There was slowing growth in the services sector in April [but] the rate of expansion is still strong,” ISM’s Anthony Nieves said, adding that “respondents’ comments indicate that pent-up demand is continuing.”
A look at the breakdown suggests that while key subindices retreated, activity remained robust. Notably, the employment gauge rose to 58.8 from 57.2, the highest since 2018.
“Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to affect deliveries, which has resulted in a reduction of inventories,” Nieves went on to say Wednesday.
Unsurprisingly, the prices paid gauge was a scorcher (again). 76.8 was the highest since the summer of 2008. “All 18 services industries reported an increase in prices paid during the month of April,” ISM remarked.
A respondent in Professional, Scientific & Technical Services summed up the current environment:
Supply has been dwarfed by demand [and] ocean-transport logistics imbalances with ships and containers. North America parcel carriers swamped with volume-processing constraints, and highway carriers can’t supply drivers, regardless of choked original equipment manufacturer [OEM] truck orders. Rail intermodal is only competitive among two dozen or so origins, to about as many destinations.
Descriptions of business levels were almost universally upbeat. Adjectives included “quite strong,” “high” and “very robust.” The problem, as one person in wholesale trade put it, is that “logistics and supply cannot keep up.”
Meanwhile, the final read on IHS Markit’s services sector gauge for April was higher versus the flash print. In April of 2020, the index sat at 26.7. A year later, it printed 64.7. Prices charged hit a record, as did input prices.
“The biggest threat to the outlook remains new virus variants, which will inevitably mean international travel and associated business activity will stay under pressure for some time to come, but in the meantime the domestic economy is faring very well, especially consumer facing industries,” Chris Williamson, Chief Business Economist at IHS Markit, said. “Another concern is prices, with a record increase in service sector charges highlighting how inflationary pressures are by no means confined to the manufacturing sector,” he added.
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