Today, US Services PMI for April:

A reading of 49.4% indicated a contraction in economic activity for the first time since December 2022. However, over time, above 49% generally indicates an expansion of the overall economy. 

Therefore, this is a weak but still expansionary report, in the same line as the S&P Global Services PMI. Both reports indicate a weak start to the second quarter, with the services sector growing at a slower rate. Job creation (according to S&P Global) dropped to the lowest levels since 2022 because employers were not backfilling departing employees, apparently due to delays caused by the tightness in the labor market.

This is the first month that ISM and S&P Global have reached the same conclusion regarding the employment situation. ISM has signaled a contraction in employment since February, and S&P Global started in April as the first month to end a job-creation period that began in July 2020.

Inventories were up in April for the first time in the year, but there is not much to read here as businesses tend to bulk up inventory at the end of the first quarter and into the second quarter to prepare for demand increases throughout the spring and summer.

On the bright side, data showed that prices charged for services are growing at a much-reduced rate due to greater competition and lower wage growth than in past months.

Some of the slack in employment indicated by the PMIs may have appeared on the payrolls data today, still creating jobs, but much less than expected (175K Vs. 243K), coupled with revisions for February and March with a net effect of -22K lower than previously reported. Surprisingly, average hourly earnings increased at a lower rate than expected: 3.9% YoY, much lower than yesterday's Unit Labor Cost report estimated.