MACRO: US services sector showed signs of acceleration in March

Economic activity in the US services sector grew in March for the 22nd month in a row as the removal of Covid-19 restrictions increased demand and employment, according to a purchasing managers survey compiled by the Institute for Supply Management. The ISM Services PMI rose to 58.3 in March from 56.5 in the previous month, but was lower than the expected rise to 58.4 as rising costs, logistical challenges and supply strains persisted. Faster increases were seen for business activity (55.5 vs 55.1) and new orders (60.1 vs 56.1) while employment rebounded (54 vs 48.5). At the same time, price pressures intensified (83.8 vs 83.1). "Labor shortages have eased slightly, as COVID-19 cases have declined and public-health restrictions have been relaxed. Geopolitical concerns - particularly the Russia/Ukraine war, which has impacted material costs, most notably fuel and chemical prices - have created uncertainty for many businesses”, Anthony Nieves, Chair of the ISM said. 

Services sector activity in the US strengthened in March despite rising prices and ongoing supply disruptions.Respondents once again marked fuel, energy and wage bills as the main factor behind rising inflation. Source: Bloomberg via ZeroHedge

Today's report is full of contrasts. Demand is rising supported by improving inventories and the recovery in the employment sub-index. Supply chain issues are diminishing slowly however this may not be enough to lower inflation especially taking into consideration that ongoing Russian aggression creates a lot of volatility on the global commodity markets. Also worsening the pandemic situation in China  may create greater economic disruptions and boost inflation. Today’s report showed that rise in selling prices was the sharpest on record (since October 2009), while cost inflation approaches December's record high which may force companies to take “a cautious approach to planned capital expenditures.”