WRAPUP 2-U.S. services growth retreats from 5-yr high-ISM


 * U.S. March services ISM index dips to 57.3, from 59.7
 * Economists polled by Reuters expected a 59.5 reading
 * Prices still rising, small U.S. CEOs less confident
 * Data likely won't bolster case for higher U.S. rates
 * Europe, Britain see hearty service sector growth
 (Adds detail, comment)
 By Steven C. Johnson
 NEW YORK, April 5 (Reuters) - Growth in the U.S. economy's
vast services sector slowed last month, an industry report
showed on Tuesday, held back in part by supply disruptions
caused by Japan's earthquake.
 After hitting a five-year high in February, the Institute
for Supply Management's index of non-manufacturing activity
slipped back in March and prices eased.
 Nonetheless, the services sector posted a 16th straight
month of growth. For more, see [ID:nN05188782]
 The survey could strengthen the case of some top Federal
Reserve officials who argue the U.S. economy is not yet strong
enough to warrant removing the massive support provided by the
U.S. central bank.
 On Monday, Federal Reserve Chairman Ben Bernanke said a
spike in U.S. inflation was being driven by commodity prices
and would probably not last. [ID:N04294041]
 The ISM's manufacturing report last week showed rising
commodity costs pushed prices to their highest since mid-2008.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
 U.S. services sector graphic: http://r.reuters.com/faj88r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
 Tuesday's report on the services sector, which accounts for
about 80 percent of the U.S. economy, was below median forecast
of the 71 economists surveyed by Reuters.  
 "It suggests that we are still in expansion mode, but
things are slowing down a little bit," said Rudy Narvas, senior
economist at Societe Generale. "The data on balance has been
sort of mixed. A lot of people are downgrading their first
quarter growth estimates, and we are as well."
 Strategists at RBS said some firms indicated that
disruptions in the supply chain stemming from Japan's
earthquake complicated production, "so that may explain some of
the slide" in business activity.
 Toyota Motor Corp (TM.N: Quote, Profile, Research) said this week disruptions in
parts supplies will force it to shut some of its North American
plants in April, which could lead to a shortage of new models
in auto showrooms this spring.
 Rising oil prices and Japan's crisis did dent confidence
among small U.S. business leaders, according to a separate
survey published by Vistage.
 The report showed 50 percent of CEOs in the first quarter
expected improvement in the economy. That figure stood at 59
percent the prior quarter.
 Hiring plans were unchanged, according to the report. "It
has stalled because there's a new level of uncertainty. That is
not surprising, given events in Japan and the Middle East,"
said Vistage International Chief Executive Rafael Pastor.
 Inflation also appears to be a bigger concern in Europe.
Service-oriented businesses in the euro zone and Britain saw
solid growth in March, suggesting expansion in both economies
could surpass economists' forecasts. Firms, however, reported
that inflation was squeezing profit margins. [ID:nLDE7340JS]
  The European Central Bank, by contrast, is expected to
raise interest rates by a quarter-point to 1.25 percent on
Thursday.
 Inflation is already a problem in China, where the central
bank raised deposit and lending rates by a quarter point on
Tuesday, the fourth hike since October.
 [ID:nN04190116]
(Editing by Padraic Cassidy and Andrew Hay)


WRAPUP 2-U.S. services growth retreats from 5-yr high-ISM