This year has seen its share of ups and downs in economic reporting, and the mix of inflation and a strong but tight labor market is helping to drive the growth after the passage of tax reform. It turns out that the services and nonmanufacturing economy have continued to demonstrate robust growth during 2018.

That said, both the Purchasing Managers Index reading and the Institute for Supply Management showed marginal downticks in their growth rates in March. And employment and inflationary pressures persist.

The PMI Services Index for March came in at 54.0. That is a tad under the Bloomberg consensus estimate of 54.1 and is also under the 55.9 reading from February. New orders are strong but showed some easing, while output remains strong and hiring has accelerated.

On the inflation front, the PMI Services report showed that higher input costs are being passed on to customers and that is inflationary. The report said:

On the price front, the rate of input cost inflation softened from February’s multi-year high. That said, cost burdens still rose at a strong pace. A number of survey respondents stated that the increase in input prices stemmed from higher fuel and wage costs. Reflective of favorable demand conditions, greater cost burdens were largely passed on to clients through higher charges. The rate of output price inflation eased slightly from that seen in February but remained strong overall.

Another competing report is the ISM Non-Manufacturing Index. This came in at a strong 58.8% reading in March, also under the Bloomberg consensus of 59.0 and less than the February reading of 59.5.

In the ISM report, the Non-Manufacturing Business Activity Index fell 2.2 points to 60.6. The new orders index was strong but came back under a reading of 60 for the first time in three months. The employment component rose 1.6 points to 56.6 in March, while supplier deliveries increased by three points to 58.5.

And on inflation, the ISM Non-Manufacturing report showed that input prices ticked up by a half-point to 61.5. That was the third consecutive reading above 60 and was the 25th month of increases. The ISM report further said:

Despite the slight dip in the NMI composite index, the non-manufacturing sector enjoyed another month of strong growth in March. The cooling off of the New Orders Index possibly prevented an even stronger reading for the NMI® composite index. The majority of respondents remain positive about business conditions.

A difference in the two economic reports is that the nonmanufacturing also includes mining. This is the strongest of the main sectors for March. Construction included some commentary about tariffs for materials (including aluminum and steel) disrupting some building plans.

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