The service portion of the U.S. economy expanded for the 25th straight month in April, but at a slower pace than in March, a private research organization said Wednesday, signaling higher energy prices and inflation concerns are pressuring economic growth.
The Institute for Supply Management said its index of activity among service companies for April fell to 61.7 from 63.1, a month earlier. Analysts had estimated the index would ease to 61 in April.
Although the index was down, it remained above 50, indicating the economy’s crucial service sector continued to growth last month.
The institute also said that 14 of the industries it tracks — including utilities, insurance, retail trade, and real estate — reported growth last month while two — transportation and legal services — remained the same. Only entertainment reported decreased activity from March.
Employment in the non-manufacturing sector also increased at a slower rate than in March, with the index hitting 53.3 percent, down from 57.1 percent. It was the 19th consecutive month of growth.
The stock market glossed over the report and instead moved higher on lower crude oil prices, decent earnings and billionaire investor Kirk Kerkorian’s bid to substantially add to his stake in General Motors Corp.
In late morning trading, the Dow Jones industrial average was up 70.13, or 0.7 percent, at 10,327.08, largely on the 14 percent rise in GM’s share price.
Broader stock indicators were also higher. The Standard & Poor’s 500 index gained 7.16 to 1,168.33. The Nasdaq composite index rose 12.46, or 0.6 percent, to 1,945.53.
The Institute’s report comes a day after the Federal Reserve, worried about rising inflation, pushed a key interest rate higher.
Federal Reserve Chairman Alan Greenspan and his colleagues nudged up the federal funds rate by one-quarter of a percentage point, to 3 percent. It was the eighth increase of that size since the Fed began to tighten credit last June, and it left the rate at the highest level since the fall of 2001.
Higher interest rates are a defense against rising inflation. But when it is more expensive to borrow money, some consumers and businesses are less inclined to spend and invest, factors that would further chill an already cooling economy.
In a brief statement issued after their closed-door meeting, the policy makers said that the economy had hit a rough patch in early spring. “The solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices,” they said.
Oil prices soared into record territory in March and hit a new peak of $57.27 a barrel at the beginning of April — straining household and business budgets. Prices have since retreated and were at $48.80 on Wednesday.
“I would say that the recent slow economic growth is an indication of higher energy prices and that the second most likely culprit is interest rates,” said Patrick Fearon, senior economist at A.G. Edwards & Sons Inc. in St. Louis, Mo.
Fearon noted that gas prices have been falling, however, and that increased production combined with a slowing world economy bode well for lower energy costs going forward.