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US Services PMI Maintains Solid Growth Pace in April

The US service economy expanded at a slower rate in April, although the overall trend continued to point to solid growth in business activity as incoming new work increased.

Markit Group’s flash US services PMI fell to 57.8 in April from 59.2 in March. A median estimate of economists called for a slight increase to 59.2. A reading above 50 signifies expansion in service activity, whereas a reading below that level indicates contraction.

The Markit PMI composite – a gauge of service and manufacturing activity – eased to 57.4 from 59.2. Last week Markit said manufacturing lost momentum in April, slowing from March’s five-month high as production volumes weakened and new export orders declined for the first time since November 2014. The flash manufacturing PMI fell to 54.2 from 55.7 the previous month.

The flash estimate is based on 85 percent of total survey responses. Markit Group will post its final services PMI estimate early next month.

Business activity and incoming new work increased at a sharp rate in April, leading to the biggest rise in service sector job creation since June 2014. Businesses were generally more optimistic about future business activity, leading to increased hiring. US private sector payroll activity is expected to rebound in April from March’s temporary, weather-related slowdown.

“The service sector enjoyed strong growth at the start of the second quarter, adding to evidence that the economy remains in good health,” said Markit chief economist Chris Williamson in a statement. “Although the pace of expansion slowed compared to March, April saw the second-largest rise in business activity for seven months.”

The latest industry PMIs suggest the US economy expanded 1 percent annually in the first quarter, mirroring last year’s slow start. Preliminary April data point to a bigger rebound in the second quarter to the tune of around 3 percent annually, according to Williamson.

The Commerce Department will post preliminary first quarter GDP data on Wednesday, the same day the Federal Reserve wraps up its two-day policy meetings.

The Fed will not adjust interest rates this week and could use weak GDP growth to justify its dovish outlook. The federal funds rate is expected to average only 0.625 percent at the end of 2015.

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