The service sector posted slower growth in March as price growth fell to the lowest level since the start of the pandemic, according to data from the Institute for Supply Management on Wednesday.
The composite index fell to 51.4 from 52.6, while the prices paid subindex dropped to 53.4 from 58.6.
The data gives the market and the Federal Reserve a much-needed breather following a recent uptick in inflation. With goods inflation picking back up as energy prices surge, the market is looking for signs of easing from the service sector.
Even with prices growing more slowly, business activities and new orders stayed strong in March, reinforcing the soft-landing narrative for the sector when lower inflation does not mean growth deteriorating.
Employment, however, posted the third drop in four months, a sign of a cooling labor market. That decline is in line with our call for a gain of 215,000 jobs when the employment report for March is released on Friday, down from 275,000 in February.
Other main drivers of the drop in overall sentiment came from lower inventories, with the inventory change subindex dropping to 45.6, the lowest level since December 2022.
Read more of RSM’s insights on the economy and the middle market.
The figure is not seasonally adjusted, so one might want to take that reading with a grain of salt. But if demand is taken into account, inventory-to-sales sentiment remained high, growing for the 11th consecutive month.
Looking at participants’ responses to the ISM survey, overall sentiment pointed to a return to normal as the sector continues to cool. Again, that is a much-needed recipe for service inflation to finally come back in line with what the Fed is aiming for.
