The numbers: A bellwether of business conditions at U.S. companies fell to a three-month low of 51.2% in March, signaling slackening growth as strains mount on the economy.
The Institute for Supply Management’s services index fell from 55.1% in February.
Numbers above 50% indicate companies are expanding, but the latest survey suggests growth has taken a turn for the worse.
“The likelihood of a mild slowdown in the second half of 2023 or 2024 is still pretty high,” an executive at a professional company told ISM. “Layoffs will continue.”
The closely followed ISM reports are the first major indicators of each month to offer clues on how well the economy is performing. While the large service sector of the economy is still growing, manufacturers have fallen into a slump of sorts.
Economists polled by The Wall Street Journal had expected the services index to drop to 54.3%.
Key details:
- The production gauge dropped almost 1 point to 55.4%.
- The new-orders index sank 10.4 points to 52.2%. That’s the lowest reading since the end of last year.
- The employment barometer slipped 2.7 points to 51.3%.
- The prices-paid index, a measure of inflation, declined 6.1 points to 59.5%. That’s the smallest reading since July 2020. “Prices are coming down but in small increments,” a transportation executive told ISM.
Big picture: Service companies such as banks, hotels, retailers and restaurants make up the bulk of all U.S. businesses. They also employ the vast majority of Americans.
Most of these companies have been expanding as consumers shift to spending more on services instead of goods like they did during the pandemic.
Yet most economists expect spending to slow even further and unemployment to rise due to persistently high inflation and rising interest rates. Higher borrowing costs make it more expensive to take out a loan, buy a house or car, or use a credit card.
“Economic uncertainty is still a concern, and interest rates are continuing to be monitored closely,” an executive at a financial company told ISM.
Looking ahead: “The deterioration in this data suggests that the services side of the economy is responding to higher interest rates,” said economist Katherine Judge of CIBC Economics. She said the pressure on businesses is likely to increase as the weight of rising interest rates is more fully felt.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were mixed in Wednesday trades.
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