April data indicated that service sector output growth moderated since March, but was stronger than seen on average during the first quarter of 2015. Rising volumes of incoming new work supported business activity levels in April, which in turn contributed to the fastest increase in payroll numbers since June 2014.
Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 57.4 in April, down from 59.2 in March but still the second-highest reading since last September. Moreover, the index posted above its average for the first quarter of 2015 as a whole (56.8).
The seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) posted 57.0 in April, down from 59.2 in March and the lowest reading for three months. Slower growth of U.S. private sector output reflected weaker increases in both manufacturing production (index down from 58.8 to 55.3 in April) and service activity.
The proportion of service providers expecting a rise in business activity over the next 12 months (48%) continued to exceed by a wide margin the number anticipating a fall (2%). Anecdotal evidence from service sector companies pointed to new product launches, greater marketing budgets and confidence regarding the long-term U.S. economic outlook.
Unfinished work continued to rise across the service sector in April, which extended the current period of backlog accumulation to nine months. That said, the latest rise was only marginal and the weakest since January. Meanwhile, sustained new business growth and efforts to boost operating capacity resulted in a robust pace of job creation in April. Latest data indicated that the rate of service employment growth accelerated for the fourth month running and was the strongest since June 2014.
Service providers indicated greater pressure on operating margins in April, with input cost inflation picking up further from the near five-year lows seen at the start of 2015. The latest increase in input prices was the most marked since last October, which some panel members linked to greater salary payments. Steeper cost inflation in turn contributed to the fastest rise in prices charged by service sector companies for seven months in April.
The NMI® registered 57.8 percent in April, 1.3 percentage points higher than the March reading of 56.5 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased substantially to 61.6 percent, which is 4.1 percentage points higher than the March reading of 57.5 percent, reflecting growth for the 69th consecutive month at a faster rate. The New Orders Index registered 59.2 percent, 1.4 percentage points higher than the reading of 57.8 percent registered in March. The Employment Index increased 0.1 percentage point to 56.7 percent from the March reading of 56.6 percent and indicates growth for the 14th consecutive month. The Prices Index decreased 2.3 percentage points from the March reading of 52.4 percent to 50.1 percent, indicating prices increased in April for the second consecutive month, but at a slower rate. According to the NMI®, 14 non-manufacturing industries reported growth in April. The majority of respondents indicate that there has been an uptick in business activity due to the improved economic climate and prevailing stability in business conditions.”