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Economic Report: The U.S. economy’s service side slowed in April due to high inflation and shortages

The numbers:  An ISM barometer of business conditions at service-oriented companies such as banks, retailers and hospitals fell 1.2 points in April to 57.1% and signaled that labor and supply shortages as well as high inflation are hurting the economy.

Economists polled by The Wall Street Journal had forecast a flat reading of 58.3%.

Numbers over 50% are viewed as positive for the economy and anything over 55% is considered exceptional.

Yet the survey shows a cooler service economy compared to the end of last year. A similar survey of American manufacturers also posted the softest growth in April in 18 months.

Demand is not the issue — businesses have more than they can handle. Ongoing shortages of labor and supplies, high energy prices and the worst bout of inflation in 40 years are the biggest hurdles.

Big picture: Service-providing companies have rebounded from the decline in coronavirus cases and a shift in consumer spending toward “experiences” instead of goods. Think leisure and entertainment instead of clothes or new televisions.

Yet companies of all stripes are facing rising costs and some customers are balking at higher prices.

The Federal Reserve is also aiming to raise interest rates sharply to try to tame inflation, an approach that threatens to reduce demand and slow the economy.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.11%

rose slightly in Wednesday trades and the S&P 500 declined.

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