Activity in the U.S. service sector expanded at a slower than expected pace in the month of April, according to a report released by the Institute for Supply Management on Friday.
The ISM said its non-manufacturing index fell to 53.1 in April from 54.4 in March, although a reading above 50 indicates continued growth in the service sector. Economists had expected the index to edge down to 54.0.
With the bigger than expected decrease, the non-manufacturing index hit its lowest level since coming in at 52.9 in July of 2012.
Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, said, "According to the NMI, 14 non-manufacturing industries reported growth in April."
"Respondents' comments remain mostly positive about business conditions," he added. "Cost management and revenue pressures are areas of concern for many of the respective companies."
Along with the drop by the headline index, the report showed that the business activity index dipped to 55.0 in April from 56.5 in March. The new orders index also edged down to 54.5 from 54.6.
The employment index also slid to 52.0 in April from 53.3 in March, suggesting a slowdown in the pace of job growth in the service sector.
On the inflation front, the prices index tumbled to 51.2 in April from 55.9 in March, indicating a substantial slowdown in the pace of price growth.
Paul Dales, Senior U.S. Economist at Capital Economics, said, "Overall, the weakening in this survey won't get much attention after the payroll report and probably won't prevent equity prices from holding onto today's 1% rise."
"Nonetheless, when taken together with the softer ISM manufacturing survey, the survey points to a slowdown in annualized GDP growth in the second quarter to around 1.5%," he added.
Wednesday morning, the ISM released a separate report showing that activity in the U.S. manufacturing sector expanded at the slowest rate of the year in April.
The ISM said its purchasing managers index fell to 50.7 in April from 51.3 in March, although a reading above 50 still indicates growth in the manufacturing sector.
While the reading above 50 points to the fifth consecutive month of growth in the manufacturing sector, the drop pulled the index down to its lowest level since December of 2012.
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