The services side of the US economy slowed in April due to high inflation and tightening

The payment: An ISM barometer of business conditions at service-oriented firms such as banks, retailers and hospitals fell 1.2 points to 57.1% in April, signaling that labor and supply shortages and high inflation are hurting the economy.

Economists polled by the Wall Street Journal had forecast a flat reading of 58.3%.

Anything over 50% is considered positive for the economy and anything over 55% is considered exceptional.

However, the survey shows a cooler service economy compared to late last year when the index was above 60% for 10 straight months. High inflation is a major reason for this. The so-called price-paid index, a measure of inflation, rose to a record high.

A similar ISM survey of American manufacturers also showed its weakest growth in 18 months in April.

Demand isn’t the problem—businesses still have more than they can handle. Persistent labor and material shortages, high energy prices and the worst inflation in 40 years are the biggest hurdles.

Big picture: Service companies have rebounded from the fall in coronavirus cases and a shift in consumer spending towards “experiences” rather than goods. Think leisure and entertainment instead of clothes or new televisions.

But companies of all stripes are faced with rising costs and some customers are reluctant to pay higher prices.

The Federal Reserve also intends to raise interest rates sharply to try to tame inflation, an approach that threatens to reduce demand and slow the economy.

Key data:

• The new orders index fell by 5.5 points to 54.6%. This is the weakest reading in 14 months.

• The production gauge rose 3.6 points to 59.1% but is rather backward looking.

• The employment barometer fell 4.5 points to 49.5%, the second negative reading in the past three months.

• The price-paid index rose from 83.8% to a record high of 84.6%.

“Inflation, supply chain issues and access to skilled labor remain issues,” a senior public administration official told ISM.

“Cost pressures are starting to slow demand,” said a wholesale executive.

Market reaction: The Dow Jones Industrial Average DJIA (+0.09%) was up slightly during Wednesday trading and the S&P 500 SPX was down -0.33%.