U.S. services sector growth slows; employment drops: ISM

WASHINGTON (Reuters) – U.S. services sector activity slowed to a more than 3-1/2-year low in March, with industries reporting a moderation in new orders and decline in employment amid the coronavirus pandemic, which has brought the country to sudden stop.

The Institute for Supply Management (ISM) said on Friday its non-manufacturing activity index fell to a reading of 52.5 last month, the lowest since August 2016, from 57.3 in February.

A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index dropping to a reading of 44.0 in March.

The smaller-than-expected decline in the non-manufacturing index reflected a jump in the survey’s measure of supplier deliveries to a reading of 62.1 last month from 52.4 in February. A lengthening in suppliers’ delivery time is normally associated with increased activity, which would be a positive contribution. In this case, however, slower supplier deliveries indicate supply shortages rather than stronger demand.

The ISM reported on Wednesday that manufacturing activity contracted in March, with new orders received by factories tumbling to an 11-year low.

Despite the vast services sector still appearing to be growing, although at a moderate pace, economists believe the economy slipped into recession in March, with 10 million Americans filing for unemployment benefits in the last two weeks of the month. The vast majority of Americans are now under some form of lockdown as authorities try to control the spread of the virus.

The National Bureau of Economic Research, the private research institute regarded as the arbiter of U.S. recessions, does not define a recession as two consecutive quarters of decline in real gross domestic product, as is the rule of thumb in many countries. Instead, it looks for a drop in activity, spread across the economy and lasting more than a few months.

The ISM survey’s measure of new orders for the services industry fell to a reading of 52.9 in March, the lowest since August 2016, from 63.1 in February. The survey’s index of services industry employment tumbled to 47.0 last month, the lowest reading since February 2010, from 55.6 in February.