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US Services Sector Declined for the First Time According to NAPM April, 2001 Non-manufacturing index. By Jaime Niņo
May 4, 2001

The April National Association of Purchasing Management non-manufacturing index fell to 47.1 from 50.3 in March indicating and end to a more than four-year expansion in the US services sector. This is the first time since the index was created in 1997 that values of the survey are bellow 50, which is the breaking point between growth and contraction. Not only business activity contracted for the first time, but the volume of new orders contracted in April registering 45.9 after coming at 52.2 in March.

In turn, employment in the service sector contracted for a second time in a row after readings were 46.7 in April and 49.4 in March. The declines reflect the fact that trends in general for the non-manufacturing sector lag those in manufacturing. However, since services do not accumulated inventories in the way observed in the manufacturing sector, a recovery of the latter is likely to restore growth in the services sector in a shorter time-period.

The prices paid index continued to indicate that prices are on the rise despite falling orders. That component of the index stood at 59.5 in April, the same level as March indicating that services have more pricing power than manufacturing outlets for which prices continued to decline from 49.9 in March to 48.9 in April. While 88% of manufacturers indicated that they had little or no ability to pass on cost increases, the level was 66% for non-manufacturers confirming the greater pricing power in the services sector. Another critical reason for the higher prices in services is the greater weight of labor costs in the overall production costs, which have remained stable despite the slowing of the economy.

The full report is available at http://www.napm.org/NAPMReport/NMROB052001.cfm

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