US: Service sector resilience called into question – Wells Fargo

The March ISM Service PMI showed lower-than-expected numbers in its main indicators. Analysts at Wells Fargo point out it signalled cooler activity in March amid a pullback in new demand as higher rates and recent banking sector stress weigh on the outlook. However, they noted that business activity practically held firm and major components remained consistent with expansion.

Key quotes: 

“The breadth of service sector activity clearly pulled back in March. We expected service activity to cool to some degree last month, but the near-four point drop was larger than anticipated. The ISM services index is now at 51.2, which still signals expansion, but the latest report takes some wind out of the sails of the services sector.”

“Service-providers continued to hire in March, but at a slower pace with the employment component dropping to 51.3. Recent labor market data suggest the jobs market is loosening. The number of job openings in February fell to its lowest level since May 2021 and the ISM manufacturing hiring component fell for the third straight month reaching its lowest reading since 2020.”

“This report is not great news for service resilience, but the sector is still expanding and the major components (business activity, new orders, employment) remain in expansion.”