US: Supply issues, inflation and a pullback in demand weighed on ISM services – Wells Fargo

Data released on Wednesday showed the ISM Service Sector dropped unexpectedly to 57.1 in April. Analysts at Wells Fargo point out that while supply remains a problem for service-producers, a pullback in demand and hiring were the top factors weighing on activity during the month. 

Key Quotes: 

“Activity in the service sector stumbled in April according to the latest ISM services report. Even as every industry other than information reported growth, the pace of expansion downshifted last month as continued supply issues, sky-high inflation and a pullback in demand weighed on activity. The overall index defied expectations for a modest improvement and slipped 1.2 points to 57.1.”

“Difficulties across the supply chain remain a large constraint on activity. This was detailed in the selected purchasing manager comments as well as the uptick in the supplier deliveries component. One clear message from both ISM reports in April is that supply chain progress took a timeout in April.”

“This environment is only exacerbated by the march higher in labor costs. While the supply of labor has improved more recently, qualified help still remains hard to find, which is keeping pressure on wages. The hiring picture from the services ISM was discouraging.”