A key gauge of services sector activity in the world’s largest economy was broadly consistent with expectations on Wednesday, suggesting banking sector stress had little impact on the engine of US growth.
At 51.9, ISM services matched estimates and moved up slightly from March. It was the fourth consecutive month of expansion.
An underlying gauge of business activity dropped to 52, the lowest since May of 2020, but the new orders index jumped nearly four points to 56.1, and a measure of hiring remained in expansion territory, albeit just barely.
Separately, the final read on S&P Global’s services PMI for the US was mostly unchanged from the flash print.
“Companies have reported an improvement in confidence [but] there are indications that resurgent demand for services is reigniting inflationary pressures,” Chris Williamson, S&P Global’s Chief Business Economist, said Wednesday.
The prices paid index in the ISM survey ticked higher after falling to the lowest since July of 2020 the prior month.
Earlier this week, the April update on ISM manufacturing likewise showed the prices gauge increasing. Both are now above the 50 demarcation line.
Overall, ISM respondents were optimistic, even as “some are wary of potential headwinds associated with inflation and an economic slowdown,” as Anthony Nieves put it. The anecdotes were unexciting.
In his assessment, S&P Global’s Williamson enumerated the risks, including the drag from higher rates and diminished savings buffers, but he was clear about what’s happening in the here and now.
“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,” he said. “This upturn in the service sector selling price gauge hints at a concerningly stubborn stickiness of core inflation.”
End of story.
This question is tangentially related to the topic at hand as I see it, the overall health of the US economy. Has there been any analysis to understand the impact of the student loan pause that started during Covid on the economy and consumer spending?
For some rough math, there are approximately 40-45 million people with student loans, and the average payment is about $400 per month; that means on a monthly basis there was an excess of $16 Bn – $18 Bn available to consumers that they 1) didn’t have before, and 2) won’t have going forward when payments resume. It’s entirely likely I’m missing something, I’m not an economist or finance professional, but I haven’t seen much about the potential economic impact of this.
Given the figures above, I’m wondering if this is a contributing reason for the consumer spending resilience in the face of inflation and an uncertain economic environment, and what the impact will be when loan payments begin again and if that’s being accounted for in any economic modeling and projections at large.
Good observation. The other situation I see is the impact of a (gradual?) return to the office. Folks who worked from home in the pandemic received two indirect income effects. One was the savings created when commuting costs went away. The other came about as child care expenses were saved. For average families with a couple of school age children, working from home became a de-facto raise of substantial proportions. A return to office based work will cut income for many families 20-35% (my estimate). A return to loan payments, commuting, and child care together will take a big bite out of spending for typical families.
Personal experience, sample of one…Last night at Safeway I bought $100 of groceries for $46. In general, prices rise quickly and decline slowly…Safeway is owned by Cerberus, not a charity