US services sector growth slips again in April

Washington (AFP) – The US services sector slowed again in April amid concerns that trade tensions will press prices higher and about the lack of skilled workers, according to a survey released Thursday.

Despite the modest slowdown, all 18 industries of the services sector, a key driver of the world’s largest economy, reported continued growth, the Institute for Supply Management said in a monthly report.

ISM’s Non-Manufacturing Index fell two percentage points to 56.8 percent last month, falling below analyst expectations and marking the third straight decline. 

And while the reading remained above the 50 percent benchmark that separates growth from contraction, it fell below the average for the past 12 months of 57.6 percent.

Among the three major components of the index, the employment index dropped three points from the prior month and business activity fell 1.5 points. 

And while new orders rose slightly, supplier deliveries fell four points, as companies reported rising prices, partly as a result of a shortage of truck drivers, which created backlogs.

Several mentioned trade tensions with China as a cause for concern, driving metals prices higher after US President Donald Trump imposed tough import duties on steel and aluminum as well as on $50 billion in Chinese goods.

Anthony Nieves, chair of ISM’s non-manufacturing survey committee, told reporters the trade war fears that had rattled financial markets were creating uncertainty in the services sector.

“It’s more sentiment at this point,” he said, noting that companies had seen lumber and other goods rise in price, although steel had been on the rise for several months.

Fuel and transportation costs increased as well, along with other products in short supply, like pharmaceuticals produced in Puerto Rico, which still has not fully recovered from the devastation of two hurricanes last year, he said.

“Trade tariffs will cause unintended consequences on all industries affecting production and non-production commodities,” one survey respondent said.

Nieves said business sentiment overall was positive but he said the labor shortage was continuing to bite in construction and transport and “there is not much interest in filling those positions” among workers.

RDQ Economics also highlighted the continued strength in the sector, despite the supply and employment concerns.

“We do not think that the report signals a fundamental slowing in the economy and, in part, the decline in the index may represent growing supply bottlenecks,” they said in a research note.