US service sector picks up in April; price pressures rise

Reuters

05-05-2025

WASHINGTON, May 5 (Reuters) - The U.S. services sector's growth picked up in April as orders increased, boosting a measure of prices paid by businesses for materials and services to the highest level in more than two years, signaling a building up in inflation pressures due to tariffs.
The Institute for Supply Management (ISM) said on Monday that its nonmanufacturing purchasing managers index (PMI) increased to 51.6 last month from 50.8 in March. Economists polled by Reuters had forecast the services PMI dipping to 50.2.
A PMI reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of the economy. The ISM associates a PMI reading above 49 over time with growth in the overall economy.
The survey added to solid job growth in April in offering assurance that the economy was not near a recession despite gross domestic product contracting in the first quarter, burdened by a massive inflow of imports as businesses sought to avoid higher prices from President Donald Trump's tariffs.
Efforts by businesses and households to get ahead of the import duties likely accounted for some of the rise in the services PMI last month. The ISM survey's new orders measure increased to 52.3 from 50.4 in March. Inventories also rose.
Suppliers' delivery performance worsened, suggesting supply chains were probably starting to get strained. The ISM survey's supplier deliveries index increased to 51.3 from 50.6 in the prior month. A reading above 50 indicates slower deliveries.
A lengthening in suppliers' delivery times is normally associated with a strong economy, which would be a positive contribution to the PMI. Delivery times are, however, likely getting longer because of the rush to beat tariffs.
With supply bottlenecks emerging, the survey's measure of prices paid for services inputs jumped to 65.1. That was the highest reading since January 2023 and followed 60.9 in March.
Most economists anticipate the tariff hit to inflation and employment could become evident by summer in the so-called hard economic data. Services sector employment continued to decline, though the pace slowed. The survey's measure of services employment increased to 49.0 from 46.2 in March.