WASHINGTON (AP) -- U.S. service companies likely expanded at a slightly slower pace in April than March, as consumers adjusted to the impact of higher Social Security taxes.
Economists forecast that the Institute for Supply Management's index of service firms edged down to 54 in April from 54.4 in March, according to research firm FactSet. Any reading above 50 indicates expansion.
The ISM will release the report at 10 a.m. ET Friday.
The report measures growth at businesses that employ about 90 percent of the U.S. workforce, ranging from construction companies and health care firms to retail businesses and restaurants.
Slower hiring and a steep drop in new orders drove the index down in March. Even with the decline, the index nearly matched its 12-month average of 54.5.
Growth in the service industry depends largely on consumers, whose spending drives roughly 70 percent of economic activity. Americans boosted their spending from January through March at the fastest pace in more than two years, despite an increase in Social Security taxes that kicked in on Jan. 1.
But other indicators suggest the tax increase is starting to catch up with consumers. Retail spending fell in March by the most in nine months.
The tax increase has lowered incomes for a typical household earning $50,000 by about $1,000 this year. A household with two highly paid workers has up to $4,500 less.
Most economists predict the tax increase and steep government spending cuts that began on March 1 will start to slow economic growth in the April-June quarter.
Consumers are more optimistic that the job market is healing and will deliver higher pay later this year, according to a survey of April consumer confidence released Tuesday.
And other trends may offset some of the impact of the taxes this year. Consumers have cut their debts. Rising home values and stock prices have increased household wealth And average gas prices nationwide have dropped 27 cents from their peak this year to $3.52 a gallon, according to AAA.