U.S. service sector’s business activity sees strong growth in April

Survey data for the month of April showed that business activity throughout the U.S. service sector recorded a solid growth. But even if the rate of growth accelerated, it continued to be lower than the series’ long-run average.

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index rose to 54.6 in April from March’s 54. The latest index reading was the highest for three months and hinted a solid growth in business activity throughout the service sector. Panellists linked the output rise to increased order volumes from new and existing clients. However, the pace of growth continued to be lower than the long-run series average of 55.2.

New business received by service providers rose further in April, and at a more rapid pace. Furthermore, the rate of the upturn was the most rapid since March 2015 and sharp overall. Panellists implied that growth was influenced by the acquisition of new clients and more favourable economic conditions, which buoyed demand. Consistent with a sharp rise in new business, pressure was placed on operating capacity. Companies noted that solid employment growth stemmed from larger business requirements. Even if the pace of job creation was unchanged since March, it was still one of the most rapid in the last three years.

Backlogs of work also rose moderately as the rate of new order growth outstripped that seen for output. Furthermore, outstanding business rose at the most rapid rate since March 2015. On the price front, input cost inflation picked up in April. The pace of rise was solid overall and the second-quickest since June 2015. Where price rises were reported, anecdotal evidence partially attributed this to increased fuel costs. Respondents also attributed inflation to higher raw material prices.

Average prices charged rose at a pace consistent with the strong rate seen in March. Panellists stated that more favourable demand conditions permitted companies to partially pass higher input costs on the clients. Finally, business expectations towards the coming year were strong in April. The degree of sentiment reached the highest in nearly three years, aided by recent strong rises in output and new orders.

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