Service providers indicated a further rise in business activity during April, helped by a solid rebound in new order growth. However, job creation remained only marginal and the latest increase in payroll numbers was the slowest since March 2013. Input cost inflation accelerated in April, which in turn contributed to the fastest rise in output charges since the survey began in October 2009.
Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 55.0 in April, down slightly from 55.3 in March and above the neutral 50.0 threshold for the sixth consecutive month. The latest reading was higher than the ‘flash’ estimate of 54.2 and pointed to a solid pace of output expansion that was broadly in line with the average seen over the first quarter of 2014 (55.1).
At 55.6 in April (54.9 flash), the seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) was down only fractionally from 55.7 in March. The index signalled a solid increase in private sector output, but the latest reading was the second-lowest since October 2013.
Higher levels of services business activity were supported by a robust improvement in new orders in April. The latest survey indicated a marked rebound in new business growth from the 18-month low recorded in March. However, service providers mostly noted that the current demand environment was insufficient to generate capacity pressures at their units. As a result, backlogs of work dropped for the second month running and at the most marked pace since August 2013.
A lack of pressure on operating capacity led to only a subdued rise in services employment numbers in April. The rate of service sector jobs growth eased for the third successive month and was the weakest since March 2013.
April data indicated that service providers remain highly upbeat about the prospects for output growth at their units over the year ahead. More than half of the survey panel anticipate an expansion of business activity, which they generally linked to the launch of new products and signs of rising underlying client demand.
Meanwhile, services input cost inflation picked up from the 11-month low registered in March. The latest increase in average cost burdens was the fastest since January. Stronger cost pressures in turn contributed to a robust rise in average prices charged by service sector companies. The latest increase in output charges was the sharpest since the survey began in October 2009.
The U.S. Services ISM also rose in April, to 55.2.
Haver Analytics calculates an index using the ISM nonmanufacturing series and the ISM manufacturing sector index released Thursday. The April figure also increased to 55.2 from a February low of 51.8. During the last ten years, there has been a 76% correlation between this composite index and the quarterly change in real GDP.
Leading the nonmanufacturing index higher last month was a jump in the business activity series to 60.9, its highest level since August. Rising sharply as well was the new orders figure to 58.2, also its highest point since August. Countering these gains was a moderate drop in nonmanufacturing payrolls to 51.3. During the last ten years, there has been an 89% correlation between the employment index and the m/m change in private service sector plus construction payrolls. The supplier delivery index also fell to 50.5, indicating the quickest delivery speeds in six months.
The prices paid index jumped to 60.8, its highest level since October 2012. Thirty one percent of respondents indicated higher prices last month while four percent reported them lower. During the last ten years, there has been a 78% correlation between the price index and the q/q change in the GDP services chain price index.