(MENAFN) In March, the US services sector experienced a contraction, while a gauge of the prices paid by companies for inputs surged, signaling mounting concerns about inflation expectations. According to the Institute for Supply Management (ISM), the non-manufacturing Purchasing Managers Index (PMI) dropped to 49.4 last month from 51.4 in March, marking its lowest reading since December 2022. Notably, a reading above 50 typically indicates growth in the services sector, which constitutes more than two-thirds of the US economy.
The decline in the PMI underscores emerging evidence suggesting a weakening of economic momentum following a period of steady expansion. Expectations among economists, as polled by Reuters, had anticipated an increase in the index to 52.0 in April. This slowdown in economic growth coincides with the Federal Reserve's efforts to combat high inflation by implementing a series of interest rate hikes totaling 525 basis points since March 2022.
Despite expectations for the Federal Reserve to commence interest rate cuts this year, uncertainties persist amid challenges in effectively reducing inflation to the targeted two percent. Additionally, the index reflecting new orders received by service companies declined to 52.2 last month from 54.4 in March, marking its lowest reading since September of the previous year.
The contraction in the services sector, coupled with heightened inflationary pressures, raises concerns about the trajectory of the US economy. As policymakers navigate the delicate balance between stimulating economic growth and managing inflationary risks, the performance of the services sector will continue to be closely monitored for insights into broader economic trends and potential policy implications.
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