WASHINGTON- US services industry activity nudged up in September, but growth is being restrained by a persistent shortage of inputs and the resulting high prices as the pandemic drags on.
The Institute for Supply Management (ISM) survey on Tuesday reported that “ongoing challenges with labor resources, logistics, and materials are affecting the continuity of supply.” Hopes for an easing in the supply chain bottlenecks were dashed by a resurgence in COVID-19 infections over summer, driven by the Delta variant. Ports in China and the United States are also experiencing congestion.
“We don’t expect supply-side constraints to start easing meaningfully until mid-2022,” said Oren Klachkin, lead US economist at Oxford Economics in New York. “Solid demand and less Covid wariness will keep services growing, but the expansion will be capped by the supply side’s limited ability to meet demand.”
The ISM’s non-manufacturing activity index edged up to a reading of 61.9 last month from 61.7 in August. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of US economic activity. Economists polled by Reuters had forecast the index falling to 60.
Seventeen services industries, including retail trade, public administration as well as finance and insurance reported growth. Only agriculture, forestry, fishing and hunting saw a decline in activity.
Accommodation and food services businesses reported increased transportation bottlenecks, which were “resulting in longer lead times and missed appointments.”
Transportation and warehousing businesses said “demand far outweighs supply for goods and services.”
In the public administration industry, businesses complained about rising costs for both supply and service inputs, which they said “have the potential to significantly impact our operations through the end of the year, especially if seasonal trends prove exceptionally strong.”
Spending is shifting from goods to services like travel and other high-contact activities as the economy normalizes after being severely disrupted by the pandemic, thanks to vaccinations against the coronavirus.
The survey’s measure of new orders received by services businesses inched up to 63.5 last month from a reading of 63.2 in August. Its gauge of supplier deliveries dipped to a reading of 68.8 last month from 69.6 in August. A reading above 50 indicates slower deliveries. With supply still tight, prices remained high. A measure of prices paid by services industries rose to 77.5 from a reading of 75.4 in August.
That mirrored the findings of the ISM’s manufacturing survey published last Friday and suggested that high inflation could persist through 2022. The Federal Reserve last month raised its projection for its key inflation measure to 3.7 percent this year. That was up from the 3.0 percent projected in June.
The personal consumption expenditures price index, excluding the volatile food and energy components, increased 3.6 percent year-on-year in August – well above the US central bank’s flexible 2 percent inflation target. – Reuters
