U.S. Service Sector Growth Accelerated in April Amid Economy Reopening -- IHS Markit

May 05, 2021 at 10:19 am EDT

By Xavier Fontdegloria

Service sector activity in the U.S. grew in April at a record-high pace as new business soared amid marked uptick in client demand, data from IHS Markit showed Wednesday.

The final reading for the U.S. Services Purchasing Managers' Index for April came in at 64.7, up from 60.4 in March and above the flash estimate of 63.1. Economists polled by The Wall Street Journal expected the final services PMI to increase to 63.3.

The pace of growth was the sharpest since data collection began in late 2009, IHS Markit said. The measure is well above the 50-point mark that indicates expansion, signaling strong growth.

"Thanks to the cocktail of a successful vaccine roll-out, the reopening of the economy, ultra-accommodative monetary policy and injection of fresh fiscal stimulus, businesses are reporting the strongest surge in demand seen for at least a decade," said Chris Williamson, chief business economist at IHS Markit.

New business increased at the most marked pace on record in April, an upturn attributed to the relaxation of lockdown measures and further reopening of businesses, with client demand expanding, the report said.

In line with stronger new business growth, service providers expanded their workforce numbers at a sharp pace.

"The biggest threat to the outlook remains new virus variants, which will inevitably mean international travel and associated business activity will stay under pressure for some time to come, but in the meantime the domestic economy is faring very well, especially consumer facing industries," Mr. Williamson said.

Reflective of greater strain on business capacity, backlogs of work were accumulated at the strongest pace since September 2020. Alongside substantial supplier delivery delays, firms stated that outstanding business rose following efforts by companies to take on as much work as possible following extensive lockdown restrictions, IHS Markit said.

Input costs faced by service sector firms increased at an unprecedented rate in April amid increases in supplier prices and greater transportation fees. Firms sought to pass on part of the increase in costs to clients through higher output charges, with the rate of output price inflation accelerating to the steepest level since data collection for the series began, the report said.

IHS Markit said the Composite PMI Index stood at 63.5 in April, up from 59.7 in March. This signals the fastest upturn in private sector business activity since data collection began.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com