Signs of weakness in the US economic recovery mounted as reports on Wednesday showed a sharp slowdown in the vast services sector and less hiring by private companies in April. Economists expressed disappointment ahead of a key labour market report on Friday that is also expected to show payroll growth eased last month.
-- New orders plunge to 52.7, lowest since December 2009
-- Private payrolls rise by 179,000 in April
-- Planned layoffs down 12pc
Higher gasoline prices and slower economic growth in the first quarter likely weighed on the world's biggest economy and tempered hiring. For a preview, see Worries about rising fuel and commodity prices showed up in the latest gauge of the vast US services sector, which grew at its slowest pace since August 2010, the Institute for Supply Management said.
The US economy last August was in a soft patch caused by worries about the eurozone's deep debt crisis. The purchasing managers' index fell to 52.8 last month from 57.3 in March. A reading above 50 indicates expansion in the sector. The new orders index in the April survey tumbled to its lowest level since December 2009, a worrying sign for the service sector's outlook, economists said. New orders dropped to 52.7 from 64.1.
"It's a weak indication not only in the headline figure, but also in the worst possible place: the orders component," said Pierre Ellis, senior economist at Decision Economics. On Monday, ISM's manufacturing report showed the sector grew a bit more slowly for a second straight month in April.
The two indexes taken together are consistent with growth of about 2 percent in real gross domestic product, Credit Suisse wrote in a note to clients. The Federal Reserve last week said the US economy was improving only moderately and showed it was in no hurry to reverse its huge stimulus efforts, including near-zero interest rates. A top Fed official reinforced that message on Wednesday.
Eric Rosengren, president of the Boston Fed, said wage pressures are contained, given high unemployment and higher energy and food costs have not pushed up long-term inflation expectations. On the labour front, the ADP Employer Services report showed US private payrolls rose by 179,000 jobs last month, less than economists' expectations for a gain of 198,000.
Although job gains sped up in early 2011, improvement in the labour market was no longer so robust, said Macroeconomic Advisers LLC Chairman Joel Prakken. Friday's report is expected to show a rise in overall nonfarm payrolls of 186,000 in April, based on a Reuters poll of analysts, and a gain of 200,000 in private payrolls Employers announced 36,490 planned job cuts last month, down 12 percent from 41,528 in March, according to a report from consultants Challenger, Gray & Christmas, Inc.