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The numbers: An ISM barometer of business conditions at service-oriented companies such as restaurants and theaters rose 1.8 points in March to 58.3%, signaling a faster expansion in the U.S. economy after an omicron-induced slowdown earlier in the year.
Yet prices of oil, grains, metals and other supplies rose even faster and indicated little relief from high inflation. Ongoing supply-chain bottlenecks were also complicated by the Russian invasion of Ukraine.
Still, the increase last month broke a string of three straight declines in the Institute for Supply Management’s services sector index . Economists polled by The Wall Street Journal had forecast a reading of 58.3%.
Numbers over 50% are viewed as positive for the economy and anything over 55% is considered exceptional.
A similar ISM survey of manufacturersshowed that growth slowed a bit in March, but not enough to set all any alarm bells.
The war in Ukraine added to greater uncertainty for manufacturers, many of which are major exporters. Most service companies are not big exporters.
Big picture: The scores of service-providing companies that dominate the modern U.S. economy have gotten a lift from the decline in coronavirus cases and removal of government restrictions. People are going out more to eat, shop or entertain themselves.
Yet companies are still struggling with shortages of labor and supplies and can’t always keep up with customer demand. These problems have contributed to the highest U.S. inflation in 40 years and are not expected to ease quickly.
Key details: New orders rose 4 points to 60.1%, ISM said, and production also edged higher.
After turning negative in February, employment recovered as more people went back to work or got hired. The employment barometer increased to 54% from 48.5%.
Businesses got no relief from inflation, however. The prices-paid index moved up to 83.8% from 83.1%, just a tick below a record high.
“Pricing pressures are stronger than ever due to the Russia-Ukraine [war], and energy costs are skyrocketing,” an executive at a construction company said.
“Constrained supply of many key product groups continues. Inflation worsening,” a wholesale executive said. “Overall sales and profitability continue to be strong.”
Looking ahead: “The ISM survey doesn’t suggest that the U.S. economy is sliding into a recession,” said senior economist Jennifer Lee of BMO Capital Markets. “But soaring inflation and a Fed that is bent on tightening a lot this year, might have an influence on how activity fares over the next year and half.”
Market reaction: The Dow Jones Industrial Average
DJIA,
rose in Tuesday trades and the S&P 500
SPX,
was down slightly.
