The U.S. service economy continued to expand in April, extending its growth streak to 15 consecutive months with the Institute for Supply Management’s (ISM) Services PMI rising to 51.6. The figure marks a gain of 0.8 points from March’s 50.8, slightly above economists’ forecasts and reinforcing the sector’s role as a stabilizing force in the broader economy.
Despite the continued expansion, several subindexes signal underlying strains. Business activity increased more slowly, with the Business Activity Index at 53.7—down 2.2 points from March—but still comfortably within growth territory. New orders remained healthy at 52.3, a four-month high, suggesting steady demand.
However, the Employment Index remained in contraction at 49.0, despite improving from March’s 46.2. This indicates that while layoffs are easing, hiring remains subdued. Supplier deliveries slowed as companies adjusted to rising demand, reflected in the 51.3 reading for that index.
Inflation pressures deepened sharply: the Prices Paid Index surged to 65.1, its highest level since January 2023 and marking five straight months over 60. Respondents attributed the rise to increased costs in labor, transportation, metals, oil, and vendor pricing power. The uptick comes as firms across healthcare, financial services, and hospitality face mounting wage negotiations and input cost pressures.
Eleven out of eighteen industries reported growth in April. Leading sectors included accommodation & food services, wholesale trade, transportation & warehousing, healthcare & social assistance, and utilities. Mixed performance was seen in areas like finance & insurance and construction, which remained subdued.
Respondents highlighted difficulties in forecasting and planning due to tariff uncertainty and government budget cuts. Some are delaying new investments or cost-sensitive spending while gauging trade policy outcomes.
The wage squeeze is a prominent theme. Rising input costs and tight labor markets are pushing companies to balance wage increases with operational efficiency. Many CEOs are under pressure to maintain workforce stability by offering raises, while preserving margins through selective automation and bundling services . In healthcare, utility services, and hospitality sectors, executives noted rising labor costs as a key challenge amid tight labor inventories.
Some firms are responding by investing in AI-powered automation for routine back-office tasks and adopting bundled services—like combining maintenance, consulting, and subscription packages—to enhance revenue per customer. These efforts are designed to offset higher wages while enhancing customer value.
Economic analysts caution that the strong inflation in services complicates the Federal Reserve’s path toward interest rate relief. Persistent wage and price pressures, especially in labor-intensive industries, suggest inflation may remain “sticky,” potentially delaying any rate cuts.
Comparatively, manufacturing continues to struggle. The ISM’s manufacturing PMI remained in contraction in April, reinforcing the divergence between goods and services sectors.
Looking ahead, the services sector appears resilient but vulnerable. Whether wage increases and automation deliver margin relief without dampening growth will be a key test. Trade policy developments and input cost dynamics will further influence performance in coming quarters.
In summary, April’s ISM Services PMI shows a service sector in moderate expansion—notably its 15th month of growth—while simultaneously managing rising labor and transportation costs. CEOs are charting a cautious course: supporting their workforces through wage hikes, while pursuing digital solutions and service bundling to preserve profitability.
