US ISM Service : Despite headwinds, orders and activity both ramped up a bit – Wells Fargo

Data released on Tuesday showed an increase above expectations in the ISM Service Sector index in March to 58.3. Inflation and supply chain issues have been among the top challenges for the service sector for months, and Russia's war on Ukraine has worsened both, explained analysts at Wells Fargo. They noted that despite headwinds, “orders and activity both ramped up a bit and businesses are finally netting some new hires.”

Key Quotes: 

“The ISM services index rose in March to 58.3, a welcome improvement, but short of expectations for a more stout increase. After two difficult years, this was supposed to be the beginning of better times for the service industry. The receding of the Omicron surge, a broadening of office workers returning to the office at least a few days a week, and some incipient improvement with supply chains might have put activity back into the swing of something reminiscent of normal. But Russia's invasion of Ukraine rained on the parade by making supply problems and inflation worse.”

“At least business remains strong. Overall business activity picked up, and new orders rose as did order backlogs. In the face of high inflation and supply shortages, the orders keep rolling in.”

“Recent labor market developments also point to an improvement in labor supply. The 5.5 point gain in the employment component was large enough to push the index back into expansionary territory after signaling a contraction in February hiring.”