U.S. economy takes a step backward in April, S&P surveys show, as demand weakens

New orders decline and businesses reduce employment for first time since the pandemic

The numbers: The U.S. economy lost momentum in April, a pair of S&P surveys found, as businesses reported a decline in new orders and reduced employment for the first time since the pandemic.

The flash U.S. manufacturing purchasing managers index slipped to a four-month low of 49.9 in April from 51.9 in March.

The S&P flash U.S. services PMI fell to a five-month low of 50.9 this month from 51.7 in March.

The surveys are the first indicators of each month to give a sense of how the U.S. economy is performing. High interest rates and elevated inflation put a dent in customer demand, S&P said.

Numbers above 50 signal growth in the economy; below that, contraction.

Key details: New orders, a sign of future sales, fell for the first time in six months and caused businesses to be more pessimistic about the outlook for the economy.

“Companies responded by scaling back employment for the first time in almost four years, with business confidence also waning to the lowest since last November,” S&P said.

Inflation more broadly eased at the start of the second quarter, S&P said, but prices for raw materials continued to rise and put pressure on manufacturers.

Big picture: The economy appeared to grow at an above-average speed in the first quarter, but sticky inflation is likely to prevent the Federal Reserve from cutting interest rates soon.

The persistence of elevated inflation and high borrowing costs could also weigh on the economy in the spring and summer.

Looking ahead: “The U.S. economic upturn lost momentum at the start of the second quarter,” said S&P chief business economist Chris Williamson. “The more challenging business environment prompted companies to cut payroll numbers at a rate not seen since the global financial crisis [in 2008-2009] if the early pandemic lockdown months are excluded.”

Market reaction: The Dow Jones Industrial Average DJIA, 0.57% and S&P 500 SPX, 1.22% rose in Tuesday trades.