By David Harrison 

The U.S. services sector suffered a record fall in activity in March amid efforts to slow the spread of the coronavirus -- and analysts warned that subsequent months could show further declines.

Private data firm IHS Markit said on Friday its U.S. services index -- a survey-based measure of activity in industries such as communications, finance and transportation -- saw its steepest one-month decline since the survey began a decade ago.

The index fell to a seasonally adjusted 39.8 in March, down from 49.4 in February. The survey data was collected between March 12 and March 27, before some state-lockdown orders were in place.

Data in the coming months could be worse, said Chris Williamson, chief business economist at IHS Markit.

"With more measures to fight the virus outbreak being taken, this decline will likely be eclipsed by what we see in the second quarter," he said. "More nonessential businesses are being forced to close, some are going bust, and lockdowns are leading to vastly reduced consumer spending."

A separate index released by the Institute for Supply Management showed several measures of service-sector activity slowed sharply in March. The index for business activity slowed to 48 from 57.8 in February, the lowest reading since July 2009. And the index for employment in the services sector for to 47 from 55.6 in February.

A reading below 50 indicates a decline in activity in both indexes.

The overall service sector index, however, showed continued growth, at 52.5 in March, slowing from 57.3 in February. But that figure largely reflects the unusual situation around an index for supplier deliveries. In normal times, when businesses are having a hard time getting supplies, it reflects strong demand, which pushes an index of supplier deliveries into positive territory.

Now, with supply chains disrupted by the virus and consumers hoarding goods, that index is rising, even though it doesn't reflect consumer strength. In March, the supplier delivery index rose to 62.1 from 52.4 in February, which helped pull the overall index into positive territory.

"Because of the anomaly of what's going on in the world, this is not something that's typical in economic activity," said Anthony Nieves, chair of ISM's services survey committee.

Next month's reading is likely to show a struggling services sector, he added.

"We're slowing considerably," he said.

Paul Ashworth, chief U.S. economist at Capital Economics, said the survey should be read with caution.

"We strongly suspect the survey is simply missing the full extent of the economic carnage currently developing," he said in a note to clients. "Either because survey responses were submitted earlier in the month or because many shuttered firms simply didn't reply."

In parts of Europe, the decline in services activity was much more severe. Italy's service providers suffered the largest month-to-month fall recorded for any sector in any country on record, with the purchasing managers index plummeting to 17.4 from 52.1 in February, the IHS said. Spain's services PMI fell almost as sharply, to 23.0 from 52.1.

In both Italy and Spain, the activities that have been most directly affected by strict lockdowns account for a larger share of economic output than in recent years. In 2019, restaurants and cafes, transport and retail services accounted for 22% of Italy's gross domestic product, and 24% of Spain's. In the U.S., those activities accounted for just 16% of GDP in 2017, the most recent year for which comparable figures are available.

Write to David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

April 03, 2020 12:19 ET (16:19 GMT)

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