Services growth cools as price gauge drops to four-year low

Growth in the U.S. services sector eased in March for a second month while a gauge of input costs slumped to a four-year low.

The Institute for Supply Management’s composite gauge of services fell 1.2 points to 51.4, largely reflecting a drop in the supplier deliveries index to a record low. Readings above 50 indicate expansion, and the March figure was lower than all but one estimate in a Bloomberg survey of economists.

The index of prices paid for materials and services decreased more than 5 points to 53.4, the lowest since March 2020, according to the report issued Wednesday.

That stands in stark contrast to ISM data earlier week showing a manufacturing input-cost gauge climbed to the highest level since July 2022, suggesting the pace of goods disinflation is leveling off.

The services price data may temper concerns that the Federal Reserve’s progress on inflation is at risk of stalling. Policymakers are tracking developments in the services sector, the largest part of the economy, for signs of easing price pressures as they debate when to reduce interest rates.

With the decline in March, ISM’s gauge of prices paid by services dipped below the manufacturing input-cost measure for the first time since May 2022.

Still, service-industry respondents noted “that even with some prices stabilizing, inflation is still a concern,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.

The overall services index was depressed by the gauge of delivery times, which dropped 3.5 points to the lowest in ISM data back to 1997. Signs of improving supply chains help explain why order backlogs at service providers shrank at the fastest pace since August.

Twelve services industries reported growth in March, led by accommodation and food services. Four indicated a decrease in activity.

The ISM new orders gauge fell to a three-month low, though remained consistent with resilient demand.

The group’s business activity index — which parallels its factory output gauge — showed the strongest growth since September.

The measure of services employment ticked up slightly but remained in contraction territory.

Meanwhile, an index of inventories at service providers retreated to the lowest level since the end of 2022. A gauge of sentiment about inventories, while still indicating companies see stockpiles as too high, fell for the second straight month.

With assistance from Chris Middleton