U.S. service providers indicated a return to business activity growth during March, following a decline that was partly driven by east coast snow disruptions in February. However, the rebound in services output was only marginal, suggesting an underlying slowdown in growth momentum so far this year.
At the same time, latest data indicated that new business levels expanded at the weakest pace since the survey began in October 2009. The seasonally adjusted Markit Flash U.S. Services PMI™ Business Activity Index1 registered 51.0 in March, up from 49.7 in February, to indicate only a marginal expansion of service 1 Please note that Markit’s PMI data, flash and final, are derived from information collected by Markit from a different panel of companies to those that participate in the ISM Non-Manufacturing Report on Business.
No information from the ISM survey is used in the production of Markit’s PMI. sector activity. As a result, the latest index reading – which is based on approximately 85% of usual monthly replies – remained well below its post-crisis trend (55.6). Moreover, the average reading for the first three months of 2016 (51.3) revealed the slowest quarterly pace of expansion since Q3 2012.
Survey respondents noted that a less favourable economic backdrop and hesitancy among clients in terms of committing to new projects had held back business activity growth. Reflecting this, volumes of new work received by service providers picked up only slightly in March, and at the weakest pace since the survey began six-and-a-half years ago.
There remained evidence of heightened uncertainty about the business outlook in March. Service sector firms continue to expect rising business activity at their units over the next 12 months, but the degree of confidence was only slightly higher than the fiveand-a-half year low recorded in February. Despite relatively subdued business optimism, service providers signalled another solid increase in payroll numbers during March.
The rate of job creation accelerated slightly since the previous month and remained faster than the survey average. This in turn allowed firms to reduce their volumes of work outstanding, which has now been recorded for eight months running (the longest sustained period since the survey began).
Meanwhile, input cost inflation slowed in March and remained close to the lows seen at the turn of the year. Survey respondents noted that lower fuel prices had helped to offset stronger salary pressures at their units. Average prices charged by service providers increased marginally in March, but this contrasted with a slight reduction during the previous month.