MNI INTERVIEW: Prices Top Challenge For Services -ISM Chief

Elevated prices remain the top challenge to the U.S. services sector, but should fall quickly over the next quarter, Institute for Supply Management services chair Anthony Nieves told MNI Wednesday.

"I think we can start to see the prices index fall to the 70s because, one, we're starting to see fuel prices decline, and also consumer demand has waned just a little bit," Nieves said. "I wouldn't be surprised over the next quarter or so to see" the index fall to the 50s or 60s, he said.

Prices in the monthly services survey rose 0.8 points to 84.6 in April, the survey's highest reading ever and exceeding the seasonally adjusted figure of 83.9 from December last year. "I think that the report reflects that the economy is still good and that the biggest challenge we have right now is getting costs in line, cost-containment, based on inflation."

The survey showed 75% of service firms reporting higher prices, up from 63% in January, and 0.2% registering lower prices.

LABOR SUPPLY

The ISM services index fell 1.2ppts in April to 57.1, below market expectations, which Nieves said is attributable to a fall in new orders which fell 5.5ppts and employment which represents a quarter of the composite index and fell 4.5ppts to 49.5. A reading below 50 suggests a contraction.

"The restricted labor pool is just such a roadblock for for that index right now," he said. "This demand where it is and the activity levels within companies and people not reentering the workforce or transitioning into self employment, leaving certain industries and going into other industries, is difficult."

Retail and food services are still struggling to backfill open positions, Nieves said, acknowledging that recent BLS jobs reports show an increase in labor supply. "With the availability of workers increasing, you also have to look at whether they are suited or applicable to those open positions as well," he said.

While the ISM services chief again echoed concerns held by the manufacturing chief about risks coming from the Fed, Nieves dismissed any concerns about a recession in the near-term.

"If it does happen, it's not going to happen within the next eight to 12 months, by any stretch," Nieves said.