Service Industry Expanded in April, but at Slower Pace

WASHINGTON (AP) — A survey of United States service companies showed that the industry expanded at a slower pace in April than in March, as companies reported less business activity and could not raise their prices.

The Institute for Supply Management said on Friday that its index of nonmanufacturing activity fell to 53.1 in April from 54.4 in March. Any reading above 50 indicates expansion. The report measures growth in industries that cover 90 percent of the work force, including retail, construction, health care and financial services.

The decline in the overall index suggested that some service companies may be starting to see less consumer demand, in part because of higher Social Security taxes.

April’s weakness was largely caused by a steep drop in a measure of prices, to 51.2 from 55.9 in March. Nearly 70 percent of the companies surveyed said they did not change their prices last month, while 10 percent reduced them.

A measure of business activity also declined. Still, a gauge of new orders was mostly unchanged, and businesses stepped up restocking, typically a sign that they expect consumer spending to pick up.

Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. Americans increased their spending from January through March at the most rapid pace in more than two years, despite the increase in Social Security taxes that kicked in on Jan. 1.

And other trends may offset some of the impact of the taxes this year. Consumers have cut their debts. Rising home values and stock prices have increased household wealth And average gas prices nationwide have dropped 27 cents from their peak this year to $3.52 a gallon, according to AAA.

In manufacturing, orders fell 4 percent in March, the largest amount in seven months, but a crucial category that signals business investment plans increased. The drop in factory orders reflected a plunge in the volatile category of commercial aircraft, the Commerce Department reported on Friday. Orders were up 1.9 percent in February. But in core capital goods, a category considered a proxy for business investment plans, orders rose 0.9 percent after a 4.8 percent decline in February and a 6.7 percent surge in January.

Weaker economies overseas and the impact of across-the-board government spending cuts have made businesses more cautious, dampening demand for manufactured goods. But even with the March decline, total orders stood at $467.3 billion, 43 percent above the recession low in March 2009.

Article source: http://www.nytimes.com/2013/05/04/business/economy/service-industry-expanded-in-april-but-at-slower-pace.html?partner=rss&emc=rss