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ISM Survey Chief: Signs of Service-Sector Stabilization

2008-05-27 10:52

From:blogs.wsj.com Article type:Reproduced

The Institute for Supply Management's service-sector index reversed course in April, moving into expansionary territory in the latest sign that the economic downturn may remain mild.

The ISM's nonmanufacturing index rose to 52 in April, up 2.4 points from March. Figures above 50 indicate generally expanding activity; the index had shown the sector contracting for the prior three months.

The turn is the latest sign that conditions are stabilizing for services firms, Anthony Nieves, chair of the group's nonmanufacturing survey committee, said in an interview. The surge in the employment index, up 3.9 points to 50.8, followed government data on Friday also showing growth in services employment in April.

Companies had been reacting to the economic slowdown with hiring freezes and attrition to cut variable expenses, Mr. Nieves said. "Everyone was going into cost-containment strategies," he said. "Now they're seeing things aren't as bad and that they do have activity."

The indexes for production and new orders also showed expansion, though at a slower pace than a month earlier. Meanwhile, the sector is facing increasing price pressures much like in manufacturing. Fuel and other petroleum-based costs are creating "huge" pricing problems for services firms, said Mr. Nieves, who is also senior vice president for supply management at Hilton Hotels Corp. "It's eroding their profit margins, and there's only so much they can pass through to the consumer." –Sudeep Reddy

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