The increase of economic activity in the United States' services sector slowed in March, with the ISM Services Purchasing Managers' Index dropping from 55.1 to 51.2, falling short of estimates of 54.5.
Eight of the 10 subindices that constitute the overall index fell during the month.
The most significant drop was in New Export Orders, which plummeted by 18 points from 61.7 in February to 43.6 in March, entering contraction territory.
Imports decreased considerably in the month, falling 9 points from 52.6 to 43.6, putting them in the contraction zone as well. The increase in subindices for inventories and inventory sentiment of 2.2 and 2.6 points, respectively, is indicative of a slowdown in demand.
The S&P Global US Services PMI was revised down Wednesday from an initial estimate of 53.8 to 52.6 in March.
The rate of growth in the services sector has slowed, owing primarily to a slowing in the rate of new orders growth, a varying employment environment by industries and continued improvements in capacity and logistics, said Anthony Nieves, chair of the ISM Services Business Survey Committee.
"The majority of respondents are optimistic about business conditions," he said.
Market Reactions:
The immediate market reactions following the disappointing ISM Services PMI release saw defensive sectors — such as the SPDR Utilities Select Sector Fund XLU — rallying, and cyclical sectors such as the SPDR Consumer Discretionary Select Sector Fund XLY tumbling, amid rising risks of an impending economic slowdown.
Small-cap stocks, as represented by the iShares Russell 2000 ETF IWM also underperformed. The broader stock market, as tracked by the SPDR S&P 500 Trust ETF SPY was flat on the day.
The U.S. dollar and U.S. Treasuries gained ground, with the iShares 20+ Year Treasury Bond ETF TLT up by 0.4% on the day.
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