Service sector expansion ebbs in April

Jan. tax increase may have impact

WASHINGTON — A survey of U.S. service firms says the sector expanded at a slower pace in April than March, as companies reported less business activity and couldn’t raise their prices.

The Institute for Supply Management said Friday that its index of non-manufacturing activity fell to 53.1 in April from 54.4 in March. Any reading above 50 indicates expansion.

The report measures growth in industries that cover 90 percent of the workforce, including retail, construction, health care and financial services.

The decline in the overall index suggests some service companies may be starting to see less consumer demand, in part because of higher Social Security taxes.

April’s weakness was largely because of a steep drop in a measure of prices. That index dropped from 55.9 in March to 51.2 last month. Nearly 70 percent of firms surveyed said they did not change their prices last month, while 10 percent lowered them.

A measure of business activity also declined.

Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. Americans boosted their spending from January through March at the fastest pace in more than two years, despite the increase in Social Security taxes that kicked in on Jan. 1.

But other indicators suggest the tax increase is starting to catch up with consumers. Retail spending fell in March by the most in nine months.

The survey’s index of hiring also fell, indicating fewer jobs were added last month. But the survey conflicted with a separate government report Friday that said service-sector hiring improved in April.