Service sector growth slowed in the United States and eurozone in April but accelerated in China and India, raising doubts about a concerted pick-up in global economic activity this quarter. The eurozone dip was not as steep as that of the United States but the Wednesday data showed European companies ratcheted up prices. Indian firms also passed on higher costs to customers, indicating inflation was on the rise.
-- Indian, Chinese services PMI bounce higher
Chinese services-based companies grew at their fastest pace in 11 months in April, despite a raft of policy tightening measures imposed in recent months by Beijing. Growth in the US services sector dropped to an 8-month low. The slowdown was unexpected and the report showed weak activity across the board. That left economists worried about the economy's ability to regain some of the growth momentum lost in the first quarter.
"At the very least this will dampen hopes of a rapid re-acceleration in GDP growth in the second quarter," said Paul Ashworth, chief US economist at Capital Economics in Toronto. Economists blamed the pullback in activity in the country's vast non-manufacturing sector on high food and energy prices. The moderation in hiring by services-based companies also raised the risk that April nonfarm payrolls could come in well below the 186,000 jobs predicted in a Reuters survey.
The Institute for Supply Management's services index fell to 52.8 last month from 57.3 in March. A reading above 50 indicates expansion in the sector. "It appears that purchasing managers have undergone a reality check and may have suddenly woke up to the reality that no one is getting hired who can buy all the goods that their firms can produce," said Steven Ricchiuto, chief economist at Mizuho Securities in New York.
The Federal Reserve said last week the economy was clawing back from its deep recession at a "moderate pace" and showed it was in no rush to change its ultra-loose policy, despite some signs of inflation pressures building. In the eurozone, expansion was again dominated by Germany and France, which masked virtual stagnation in Spain and slowing growth in Italy and Ireland.
The Markit Eurozone Services Purchasing Managers' Index, which measures changes in the activity of eurozone companies ranging from banks to restaurants, slipped to 56.7 in April from the previous month's near 4-year high of 57.2. That marked its 20th month in a row above the 50 mark that divides growth from contraction.
But growth is coming at a cost. Output price indexes in closely-watched purchasing managers' surveys are hitting new highs across the world. They stayed elevated in the United States as firms made customers pay more to cover the cost of soaring commodity and energy prices. Separately, eurozone retail sales fell sharply in March, pointing to weaker household demand, as higher prices and harsh austerity measures weighed on consumer moral.
Markit said that if sustained, the latest PMI figures were consistent with quarterly growth of around 0.8 percent in the second quarter of the year. The eurozone's output price index rose to 53.0 last month, its highest level since July 2008 and up from March's 52.3, as firms grew increasingly confident about passing on soaring input costs to customers.
Data released on Friday showed consumer prices in the bloc rose 2.8 percent year-on-year in April, up from March's 2.7 percent and well above the ECB's two percent target ceiling. The ECB holds a rate-setting meeting on Thursday, having raised rates for the first time in two years last month. The next tightening is expected in June or July.
The Reserve Bank of India raised rates for the ninth time since March 2010 on Tuesday in a bid to rein in stubborn inflation that rose to nearly 9 percent in March, above the central bank's target of 8 percent. China's PMI for its services sector, published on Tuesday, rose to an 11-month high of 62.5 in April from 60.2 in March.