The US services sector recorded a slower expansion in April with the ISM PMI index falling to 53.6. The decline was driven by a sharp decline in new orders, reflecting companies’ cautious attitude towards geopolitical uncertainties stemming from the conflict in Iran.
Although the index of prices paid by businesses held steady at 70.7, economists warned of a potential spike in inflation in the coming months. The “trickle-down” effect of the increase in petroleum prices due to the closure of the Strait of Hormuz is expected to gradually permeate the global supply chain.
Labor market data (JOLTS) for March showed a small decline in job openings to 6.866 million. While hiring activity is still increasing, the job loss rate also showed an upward trend, indicating an adjustment phase in domestic labor demand.
The healthcare and public administration sectors are among the industries most concerned about the short-term impact of the Middle East conflict. Analysts have called the combination of low new orders and high inflation a negative sign for US economic growth in the second quarter.
Attention is now on the upcoming non-farm payrolls report to assess the resilience of the labor market. The Federal Reserve's (Fed) monetary policy decisions are heavily reliant on this inflation and employment data to balance price pressures while maintaining full employment.
