US Service Sector Sees Long-Awaited Relief As Economy Reopens

After a year of layoffs and uncertainty, data released on Wednesday showed the US service sector adding jobs and expanding in April, as the world's largest economy bounces back from the worst of the Covid-19 pandemic.

Payroll services firm ADP reported the private sector added 742,000 jobs last month, the overwhelming majority of which were in the services sector and in particular leisure and hospitality, one of the industries worst-affected by business restrictions meant to stop the virus.

The Institute for Supply Management (ISM) said its index of service sector activity was at 62.7 percent in April, well into expansionary territory but slightly lower than the month before as firms navigated supply chains that had grown overwhelmed by demand as major economies reopen.

The data bodes well for the United States, which is expected to see rapid growth this year as Covid-19 vaccinations allow businesses to return to normal after the pandemic caused widespread layoffs and business closures in 2020.

"The labor market is recovering and job growth is set to accelerate over coming months as the economy continues to move closer to a broader reopening," Rubeela Farooqi of High Frequency Economics said of the ADP data.

There were, however, signs of weakness in both reports: analysts had expected stronger private sector hiring in April, as well as an acceleration in the service sector, rather than the slight throttle back blamed on firms waiting for orders and searching for employees.

"Supply chain and hiring challenges within services, as well as ripple effects from the goods sector, will drag on growth," Oren Klachkin of Oxford Economics said of the ISM report.

"However, these issues won't pose a lasting drag as the economy returns to full health."

The ADP report is the first in a series of data releases over the coming days that will provide updates on the status of the American workforce.

The Labor Department on Thursday will release its weekly report on new jobless claim filings, which have declined for the past three weeks.

On Friday, its closely watched monthly employment report is released, which will update the unemployment rate and say how many jobs the economy added in April.

The ADP data showed last month's hiring was almost equally spread across firms of all sizes, but the services sector saw the lion's share of hiring with 636,000 positions added, compared to the 106,000 added by goods-producing firms.

Restaurants, hotels and other businesses that make up the leisure and hospitality sector added 237,000 jobs, the most of any industry, while trade, transportation and utilities added 155,000. The information sector saw a small decline of 3,000 jobs.

Supply chains worldwide have grown stressed by renewed demand as economies reopen after months of restrictions, leading to shortages of goods and delayed shipments.

The US economy was no exception, and ISM reported a more-than-five-point increase in the supplier deliveries index indicating slower deliveries, as well as 2.8-point increase in prices to 76.8 percent last month.

"Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to affect deliveries, which has resulted in a reduction of inventories," the survey's chair Anthony Nieves said in a statement.

Farooqi called the supply issues a "headwind," but said in an analysis they wouldn't be enough to hold the sector's recovery back.

"The outlook for the service sector remains positive, aided by a broader resumption of activity," Farooqi said.