(Kitco News) – The health of the U.S. economy is increasingly in doubt as the service sector continues to lose momentum, according to the latest data from the Institute for Supply Management released Friday morning.
The ISM said its Services Purchasing Managers Index fell to 49.4, down from March’s reading of 51.4. The data was worse than expected, as economists were looking for an improvement to a reading of 52.
Readings above 50 in such diffusion indexes signify economic growth and vice-versa. The farther an indicator is above or below 50, the greater or smaller the rate of change.
“The composite index indicated contraction in April after 15 consecutive months of growth since a reading of 49 percent in December 2022, the first contraction since May 2020 (45.4 percent),” said Anthony Nieves, Chair of the ISM Services Business Survey Committee, in the report.
Gold prices fell to session lows following the release of a disappointing nonfarm payrolls report at 8:30 am EDT, but are showing muted reaction to the services data. Spot gold last traded at $2,289.88 per ounce, and is down 0.59% on the day.
The components of the report showed significant weakening across the board. The New Orders Index fell to 52.2, down from the previous month’s reading of 54.4. At the same time, the Business Activity Index declined to 50.9, compared to March’s reading of 57.4.
The service sector labor market also remains solidly in contractionary territory, with the Employment Index falling to 45.9, well below the prior month’s 48.5 reading. “Employment challenges continue to be primarily due to difficulties in backfilling positions and/or controlling labor expenses,” Nieves said.
“Twelve industries reported growth in April,” Nieves wrote. “The decline in the composite index in April is a result of lower business activity, slower new orders growth, faster supplier deliveries and the continued contraction in employment. Survey respondents indicated that overall business is generally slowing, with rates varying by company and industry.”
“The majority of respondents indicate that inflation and geopolitical issues remain concerns,” Nieves added.
The poor showing in service sector activity comes two days after the ISM’s April Manufacturing PMI declined to 49.2, compared to March’s reading of 50.3. The data was worse than expected, as consensus forecasts looked for a smaller decline to 50.0.
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