European service sectors surge, US slows

Service industries powered ahead in Britain and the eurozone in March but slowed in the United States, surveys showed on Tuesday, highlighting the different challenges faced by policymakers. The US Institute for Supply Management's index of non-manufacturing activity slipped to 57.3 in March from February's five-year high of 59.7, falling short of market expectations.
"We're looking at this as a pause," said Paul Radeke, vice president at KDV Wealth Management. A number of US economists have recently trimmed their first-quarter growth estimates. Purchasing managers indexes (PMIs) in Britain and the eurozone told a different story, suggesting economic growth in the first quarter could surpass economists' expectations.
PMIs measure business activity at thousands of companies, The British services PMI jumped unexpectedly in March to its highest level in over a year. The equivalent eurozone survey showed service sector companies enjoying their fastest upturn since August 2007. The British and European surveys showed prices paid by companies for raw materials and goods soared again in March. They also revealed a yawning gap between input and output prices as businesses felt unable to pass on soaring costs to consumers already facing austerity measures.
The European Central Bank is tipped to follow suit and raise interest rates by a quarter percentage point from a record low 1.0 percent on Thursday. It would be the first among the world's big four central banks - the US Federal Reserve, the Bank of Japan, the ECB and Bank of England - to begin raising benchmark interest rates.
By contrast, on Monday, Fed chairman Ben Bernanke signaled the US central bank is in no hurry to reverse course. Cost pressures in the US dipped slightly in March, according to the ISM services report's prices component which slowed to 72.1 from 73.3 in March. The employment component slowed to 53.7 from 55.6.
In Britain, the Markit/CIPS services PMI surged to a 13-month high of 57.1 in March from 52.6 in February, beating even the most optimistic forecast and remaining comfortably above the 50 mark that divides growth from contraction. "It's extraordinarily strong, and it's puzzling. In some ways you can argue that maybe last month's print was on the soft side, though it was in line with the autumn," said Ross Walker, economist at RBS.