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U.S. Service Sector Activity Contracts For First Time Since December 2022

After growing for fifteen consecutive months, U.S. service sector activity unexpectedly contracted in the month of April, according to a report released by the Institute for Supply Management on Friday.

The ISM said its services PMI dipped to 49.4 in April from 51.4 in March, with a reading below 50 indicating contraction. Economists had expected the index to inch up to 52.0.

With the unexpected decrease, the services PMI indicated activity in the sector contracted for the first time since December 2022.

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The decline by the headline index partly reflected a notable slowdown in the pace of growth in business activity, as the business activity index slid to 50.9 in April from 57.4 in March.

New order growth also slowed compared to the previous month, with the new orders index falling to 52.2 in April from 54.4 in March.

The report also said the employment index fell to 45.9 in April from 48.5 in March, suggesting an accelerated contraction in employment.

Meanwhile, the ISM said the prices index jumped to 59.2 in April from 53.4 in March, indicating notably faster price growth.

“Survey respondents indicated that overall business is generally slowing, with rates varying by company and industry,” said Anthony Nieves, Chair of the ISM Services Business Survey Committee.

“Employment challenges continue to be primarily due to difficulties in backfilling positions and/or controlling labor expenses,” he added. “The majority of respondents indicate that inflation and geopolitical issues remain concerns.”

On Wednesday, the ISM released a separate report showing a modest contraction by U.S. manufacturing activity in the month of April.

The ISM said its manufacturing PMI slipped to 49.2 in April from 50.3 in March. Economists had expected the index to edge down to 50.0.

The slight pullback by the index came after it indicated a modest expansion in March following sixteen consecutive months of contraction.

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